Now that former Lincoln Savings and Loan owner Charles H. Keating Jr. has been indicted, booked, fingerprinted and, at least temporarily, jailed, Congress ought to examine some possible "unindicted co-conspirators." These are the government officials and private-sector professionals who contributed to keeping Keating in business. There is no evidence proving that they are guilty of criminal wrongdoing, but in the court of public opinion, they are guilty of contributing to the worst financial scandal of our time.
Keating, the central figure in the savings and loan fiasco, was recently indicted on 42 counts of criminal fraud and was jailed in Los Angeles.
As serious as the charges against Keating are, they may be just the tip of the iceberg for him. He also faces a $1.1 billion civil racketeering suit, and a federal grand jury in Los Angeles has been conducting a probe of him and others.
But there are a few people involved with Keating who won't go on trial, won't pay any fines and won't do jail time. Former thrift regulator M. Danny Wall and current Federal Reserve Board Chairman Alan Greenspan are among them.
At least Wall, the chief federal savings and loan regulator and the protege of Sen. Jake Garn (R-Utah) lost his job, in part, for keeping Lincoln Savings and Loan open about 18 months after the point when its doors should have been nailed shut by Wall's regulators.
In 1987, Keating complained about the regulators on Wall's regional staff in San Francisco who were supervising Lincoln Savings. Incredibly, Wall granted Keating's wish in 1988 and took the San Francisco office off the case. Later Wall paid a visit to L. William Seidman, chairman of the Federal Deposit Insurance Corp. Appalled at what Wall had done, Seidman told him, "Danny, nobody ever said that a test of a supervisor is whether the guy he's supervising agrees with him or not. . . . You're responsible for Keating, you know that."
Greenspan was an expert-for-hire for Keating. As a private financial consultant before he was appointed to the Fed, Greenspan wrote a letter on Keating's behalf to the regulators in San Francisco in 1985. Greenspan sought permission for Lincoln to exceed the limit on so-called "direct investments" -- forays by thrifts into non-traditional and risky investments.
Greenspan asserted that Lincoln was "devoting a large proportion of its assets" to the traditional job of savings and loans -- home construction and mortgages. And he warned that denial of Keating's request would put an "unfair hardship" on a "financially strong institution."
Even while Greenspan was singing praises of Lincoln, Wall's examiners were being told by Lincoln officials that junk bonds would replace some of Lincoln's investments in home mortgages because they were "easier to process," because Lincoln was "better staffed" to handle junk bonds than mortgages and because junk bonds "offer greater liquidity than family home mortgages."
Within a year, one thrift examiner wrote of Lincoln, "There is, in my estimation, a real risk of a major financial disaster in the making." And in the spring of 1987, government examiners said it was time to close Lincoln down.