Savings & Loan Crisis OTS

no merri

see deregulation

---

1 24 an robt reich

when I was a boy, my father sold dresses and blouses to the wives of factory workers. As the wages of those workers rose through the 1950s, my father earned enough to expand his business to a second shop in another factory town not far away. We were by no means rich, but he earned enough to put us in the middle class.

For three decades after World War II, the average hourly compensation of American workers rose in lockstep with the nation’s productivity gains. In other words, as workers produced more value, they got more pay.

It was a virtuous cycle, from which our family and tens of millions of others benefited: The economy grew, and the middle class expanded. Its purchasing power rose, causing the economy to grow faster. This fueled new investments and innovations that further enriched and enlarged the middle class.

But then, beginning in the late 1970s, the virtuous cycle came to a halt.

While productivity gains continued much as before and the economy continued to grow, wages began to flatten. Starting in the early 1980s, the median household’s income stopped growing altogether, when adjusted for inflation.

Today, the median household is earning just a bit more than it did in 1979, 45 years ago (adjusted for inflation).

If you’re a non-supervisory worker who relies on an hourly wage — still the vast majority of workers — you’re earning no more than you earned in 1969. Job security also declined.

So, despite an economy that’s far larger and more productive than it was 40 or 50 years ago, the typical American worker has gone nowhere.

The standard explanation attributes this to neutral “market forces,” especially globalization and technological innovations that have made many working Americans less competitive.

While surely important, the standard explanation can’t account for much of what’s happened. It doesn’t explain why the transformation occurred so suddenly, over a relatively small number of years. Nor why other advanced economies facing similar forces didn’t succumb to them. Nor why so much of the nation’s income and wealth have gone to the top.

America’s middle class has shrunk because of its declining bargaining power — orchestrated and directed by America’s oligarchy. The economic gains that would otherwise have gone to the middle class went instead to the moneyed interests at the top. Let me explain.

1. The financialization of the economy

Before the 1980s (as I noted in our discussion about the decline of the common good), large corporations were in effect owned by all their stakeholders, who were assumed to have legitimate claims on them.

As early as 1914, the popular columnist and public philosopher Walter Lippmann called on America’s corporate executives to be stewards of America. “The men connected with [the large corporation] cannot escape the fact that they are expected to act increasingly like public officials …. Big businessmen who are at all intelligent recognize this. They are talking more and more about their ‘responsibilities,’ and their ‘stewardship.’”

This vision of corporate governance came to be widely accepted by the end of World War II. Frank Abrams, chairman of Standard Oil of New Jersey, declared in a 1951 address that typified what other chief executives were saying at the time:

*“The job of management is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers, and the public at large. Business managers are gaining professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized as theirs.”

Pulp and paper executive J.D. Zellerbach told Timemagazine that “[t]he majority of Americans support private enterprise, not as a God-given right but as the best practical means of conducting business in a free society … . They regard business management as a stewardship, and they expect it to operate the economy as a public trust for the benefit of all the people.”

But a radically different vision of corporate ownership emerged in the late 1970s and early 1980s. It came from corporate “raiders” who mounted hostile takeovers with high-yield junk bonds.

The raiders used leveraged buyouts and undertook proxy fights against the “industrial statesmen” who, in their view, were depriving shareholders of the wealth that properly belonged to them.

The raiders assumed shareholders were the only legitimate owners of the corporation and that the only valid purpose of the corporation was to maximize shareholder returns.

This transformation did not happen by accident. It was a product of changes in laws governing corporations and of financial markets — changes that were promoted by the monied interests, America’s oligarchs.

In 1974, at the urging of pension funds, insurance companies, and Wall Street, Congress enacted the Employee Retirement Income Security Act. Before then, the giant portfolios of pension funds and insurance companies could be invested in only high-grade corporate and government bonds. Legally, it was their fiduciary obligation.

The 1974 Act changed that, allowing pension funds and insurance companies to invest in the stock market — thereby making a huge pool of capital available to Wall Street.

In 1982, another large pool of capital became available when Congress allowed savings and loan banks — the bedrocks of local home mortgage markets — to invest their deposits in a wide range of financial products, including junk bonds and other risky ventures promising high returns.

The convenient fact that the government insured savings and loan deposits against losses made these investments all the more tempting (and ultimately cost taxpayers some $124 billion when many of the banks went bust).

Meanwhile, the Reagan administration loosened other banking and financial regulations and simultaneously cut the enforcement staff at the Securities and Exchange Commission.

All this made it possible for corporate raiders to get the capital and the regulatory approvals they needed to mount unfriendly takeovers.

During the whole of the 1970s, there had been only 13 hostile takeovers LBO of companies valued at $1 billion or more. During the 1980s, there were 150.

Even where raids did not occur, CEOs felt pressured to maximize shareholder returns for fear their firms might otherwise be targeted. Hence, they began to see their primary role as driving up share prices.

The easiest and most direct way for CEOs to accomplish this feat was to cut costs — especially payrolls, which constitute most firms’ largest single expense.

Accordingly, the corporate statesmen of the 1950s and 1960s were replaced by the corporate butchers of the 1980s and 1990s, whose nearly exclusive focus was to “cut out the fat” and “cut to the bone.”

When Jack Welch took the helm of GE in 1981, the company was valued by the stock market at less than $14 billion. When he retired in 2001, it was worth about $400 billion. Welch accomplished this largely by cutting payrolls.

Before his tenure, most GE employees had spent their entire careers with the company. But between 1981 and 1985, a quarter of them — 100,000 in all — lost their jobs, earning Welsh the moniker “neutron Jack.” Even when times were good, Welch encouraged his senior managers to replace 10 percent of their subordinates every year in order to keep GE competitive.

Other CEOs tried to outdo even Welch. As CEO of Scott Paper, “Chainsaw” Al Dunlap laid off 11,000 workers, including 71 percent of headquarters staff. Wall Street was impressed, and the company’s stock soared.

When Dunlap moved to Sunbeam in 1997, he promptly laid off half of Sunbeam’s 12,000 employees. (Unfortunately for Chainsaw Al, he was caught cooking Sunbeam’s books; the SEC sued him for fraud, and he settled for $500,000, agreeing never again to serve as an officer or director of any publicly held company.)

In consequence of this change in the purpose of the American corporation, share prices soared, as did the compensation packages of CEOs. The results have been touted as “efficient” because resources theoretically have been shifted to “higher and better uses.”

But the human costs of this transformation have been huge. Millions of workers have lost jobs and wages. Many communities have been abandoned.

Nor have the efficiency benefits been widely shared.

As corporations have steadily weakened their workers’ bargaining power, the link between productivity and workers’ income has been severed.

Almost all the gains from growth have gone to the top. As noted, the average worker today is no better off than his or her equivalent 40 years ago, adjusted for inflation. Most are less economically secure.

Not incidentally, few own any shares of stock.

The richest 1 percent of Americans now own 52 percent of all the shares of stock owned by Americans. The richest 10 percent, 93 percent. The nation’s economic gains, once distributed broadly to the working and middle class — have been siphoned to the top.

2. Globaloney

Wages have also been suppressed because workers who are worried about keeping their jobs have accepted lower pay, relative to the economy’s productivity gains, than they did 40 years ago.

Here again, political decisions steered by the nation’s oligarchy have played a significant role. Some of the prevailing job insecurity is the result of trade agreements that invited American companies to outsource jobs abroad.

The conventional view equating “free trade” with the “free market” — in contrast to government “protectionism” — is wrong.

Just as all nations’ markets reflect political decisions about how they should be organized, so-called “free trade” agreements entail complex negotiations about how different market systems are integrated.

Within these negotiations, the interests of large corporations and Wall Street, to fully protect the value of their intellectual property and financial assets, have repeatedly trumped the interests of average working Americans to protect the value of their labor.

3. The Fed and inflation

When the Federal Reserve raises interest rates and Congress opts for austerity to reduce federal budget deficits — two policies favored by the oligarchy — the resulting unemployment also undermines the bargaining power of average workers.

Higher unemployment keeps wages low. This means higher corporate profits, leading to higher returns for shareholders.

The high inflation after the pandemic was driven in part by supply shortages and a major government stimulus. But it was also driven by monopolistic corporations using the excuse of inflation to raise their prices.

The Fed, however, believed that a root cause of inflation was wage growth, and it set out to slow the economy and loosen the labor market by raising interest rates. Here, too, the strategy was consistent with the views of the moneyed interests and was pushed by them.

4. The risk-shift to workers

Public policies that emerged during the New Deal and World War II placed most of the risks of economic change on large corporations rather than workers — through Social Security, worker’s compensation, 40-hour workweeks with time-and-a-half for overtime, and employer-provided health benefits (wartime price controls encouraged such tax-free benefits as substitutes for wage increases).

By the 1950s and 1960s, a majority of the employees of large companies remained with the companies for life. Their paychecks rose steadily with seniority, productivity, the cost of living, and corporate profits. When they retired, they received generous corporate pensions.

But after the junk-bond and takeover mania of the 1980s, that relationship broke down.

Even full-time workers who have put in decades with a company can now find themselves without a job overnight — with no severance pay, no help finding another job, no health insurance, and little or no pension.

Nearly one out of every five working Americans is now in a part-time job. Many are temporary workers, freelancers, independent contractors, or consultants, whose incomes and work schedules vary from week to week or even day to day. Two-thirds of American workers are living paycheck to paycheck.

The risk of getting old without a pension is rising.

In 1980, more than 80 percent of large and medium-sized firms gave their workers “defined-benefit” pensions that guaranteed them a fixed amount of money every month after they retired.

Now, fewer than 10 percent of companies provide their workers defined-benefit pensions. Instead, they offer “defined contribution” plans whose risks have been shifted to the workers. When the stock market tanks, as it did in 2008 and then again in 2020, their 401(k) plans tank along with it.

A quarter of all workers with so-called “matching” defined-benefit plans get no match because they don’t earn enough to contribute to them.

Meanwhile, the risk of a sudden loss of income continues to rise. Even before the crash of 2008, the Panel Study of Income Dynamics at the University of Michigan found that over any given two-yearstretch, about halfof all families experienced some decline in income.

Those downturns have become progressively larger. In the 1970s, the typical drop was about 25 percent. By late 1990s, it was 40 percent. By the mid-2000s, family incomes rose and fell twice as much as they did in the mid-1970s, on average.

Workers who are economically insecure are not in a position to demand higher wages. They are driven more by fear than by opportunity.

This is another central reality of American capitalism as organized by those with the political power to make it so.

5. The demise of labor unions

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker earned $35 an hour in today’s dollars.

Today, America’s largest employer is Walmart, and the typical entry-level Walmart worker earns about $11 an hour.

This doesn’t mean the typical GM employee a half-century ago was “worth” four times what the typical Walmart employee today is worth. The GM worker was not better educated or motivated than today’s Walmart worker.

The real difference is that GM workers a half-century ago had a strong union behind them that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members.

Because more than a third of workers across America then belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they would be unionized if they did not come close to matching the union contracts.

Today’s Walmart workers do not have a union to negotiate a better deal. They are on their own. Because only 6 percent of today’s private-sector workers are unionized, most employers across America have no incentive to match union contracts. This puts unionizedfirms at a competitive disadvantage.

The result has been a race to the bottom.

Some argue that the decline of American unions is simply the result of “market forces.” But other nations have been subject to many of the same “market forces” and continue to have strong unions. In Sweden, 90 percent of workers in the private sector are unionized. These unions continue to provide their middle classes sufficient bargaining power to command a significant share of economic growth — a much larger share than that received by the middle class in the United States.

Why the difference? Look to politics and the allocation of power.

***

The National Labor Relations Act of 1935 guaranteed American workers the right to organize into unions and imposed on employers the legal responsibility to bargain with them.

As unions gained economic power in the late 1930s and 1940s, they gained greater. political power and wielded it to further enlarge the bargaining clout of American workers. After the legendary Treaty of Detroit in 1950, when Big Business and Big Labor agreed to share productivity gains in exchange for labor peace, the rate of unionization increased dramatically, as did wages and benefits.

Which is why, by the mid-1950s, almost a third of all American employees in the private sector of the economy belonged to a union, and why the median wage increased in tandem with productivity growth.

But starting in the late 1970s, the process went into reverse. Union membership began to decline, as did the economic and political power of unions, along with the bargaining clout of most workers.

The reasons for the decline involved the changes I’ve already noted — globalization, labor-replacing technologies, and a shift in the purpose of the corporation to maximizing shareholder returns.

But the decline of labor unions was also the consequence of political and legal decisions demanded by the monied interests.

When the Taft-Hartley Act of 1947 allowed states to enact “right-to-work” laws, workers who did not pay dues got a free ride off of those who did, thereby undermining the incentive for anyone to join a union in the first place.

Until the 1980s, such laws had minimal effect because they were enacted in southern and western states. Most industries remained in the north.

But as corporations came under increasing pressure to show high returns and cut labor costs, many CEOs found “right-to-work” states more alluring. Even the old heartland industrial states of Indiana and Michigan have enacted “right-to-work” laws.

CEOs whose corporations had high percentages of unionized workers moved, or threatened to move, to “right-to-work” states.

Additionally, Reagan’s notorious firing of the nation’s air traffic controllers for going on strike (which he had a right to do because they had no right to strike) signaled to the nation’s large employers that America had embarked on a different era of labor relations.

Workers who inhabited the local service economy — retail, restaurants, custodial, hotels, elder and child care, hospitals, transportation — faced a different challenge. Their jobs were in less danger of disappearing, because they couldn’t be outsourced abroad and most would not be automated. In fact, the number of local service jobs in America has continued to grow.

But because so many workers expelled from the older industrialized economy had no choice but to seek local service jobs, service-sector employers easily found people willing to work for low wages, few benefits, and little chance of advancement.

Walmart and major fast-food chains, such as Starbucks, have been aggressively anti-union. They’ve blocked union votes, fired workers who tried to organize, refused to enter into contract negotiations, and intimidated others into rejecting the union — all in violation of the National Labor Relations Act.

A succession of Democratic presidents have promised legislation streamlining the process for forming unions and increasing penalties on employers who violate the law, but nothing has come of these promises. (President Biden has been the first to strengthen the National Labor Relations Board and encourage it to enforce the law.)

The result of all this has been a steady decline in the percentage of private-sector workers who are unionized. Despite the jolt of labor activism in 2023, that percentage continues to drop.

The decline parallels the declining share of total income going to the middle class.

Take a look:

6. Summary

The underlying problem is that average working Americans have steadily lost the bargaining power to receive as large a portion of the economy’s gains as they received in the first three decades after World War II. As a result, instead of the middle class growing, it has shrunk.

To attribute this to the impersonal workings of the “free market” is to ignore how the market has been reorganized since the 1980s. America’s oligarchs — the moneyed interests — have spearheaded this reorganization in order to receive a steadily larger share of the nation’s economic gains. As those gains have risen, so has the oligarchy’s power to accumulate even more.

But it doesn’t have to be this way. Next week we’ll look at whether — and how — countervailingpower can be restored so that more of America’s poor and working class can ascend into the middle class once again.

*Robert Reich is a professor at Berkeley and was secretary of labor under Bill Clinton. You can find his writing at https://robertreich.substack.com/.*

---

http://en.wikipedia.org/wiki/Savings_and_loan_crisis

Failures

The United States Congress granted all thrifts in 1980, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. Designed to help the thrift industry retain its deposit base and to improve its profitability, the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 allowed thrifts to make consumer loans up to 20 percent of their assets, issue credit cards, accept negotiable order of withdrawal (NOW) accounts from individuals and nonprofit organizations, and invest up to 20 percent of their assets in commercial real estate loans.

The damage to S&L operations led Congress to act, passing the Economic Recovery Tax Act of 1981 (ERTA) in August 1981 and initiating the regulatory changes by the Federal Home Loan Bank Board allowing S&Ls to sell their mortgage loans and use the cash generated to seek better returns soon after enactment;^{[^^7]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-6) the losses created by the sales were to be amortized over the life of the loan, and any losses could also be offset against taxes paid over the preceding 10 years.^{[^^8]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-TaxAct-1981-7) This all made S&Ls eager to sell their loans. The buyers—major Wall Street firms—were quick to take advantage of the S&Ls' lack of expertise, buying at 60%-90% of value and then transforming the loans by bundling them as, effectively, government-backed bonds (by virtue of Ginnie Mae, Freddie Mac, or Fannie Mae guarantees). S&Ls were one group buying these bonds, holding $150 billion by 1986, and being charged substantial fees for the transactions.

In 1982, the Garn-St Germain Depository Institutions Act was passed and increased the proportion of assets that thrifts could hold in consumer and commercial real estate loans and allowed thrifts to invest 5 percent of their assets in commercial loans until January 1, 1984, when this percentage increased to 10 percent.^{[^^9]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-multiple2-8)

A large number of S&L customers' defaults and bankruptcies ensued, and the S&Ls that had overextended themselves were forced into insolvency proceedings themselves.

The US government agency FSLIC, which at the time insured S&L accounts in the same way the Federal Deposit Insurance Corporation insures commercial bank accounts, then had to repay all the depositors whose money was lost. From 1986 to 1989, FSLIC closed or otherwise resolved 296 institutions with total assets of $125 billion. An even more traumatic period followed, with the creation of the Resolution Trust Corporation in 1989 and that agency’s resolution by mid-1995 of an additional 747 thrifts. ^{[^^10]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-autogenerated3-9)

A Federal Reserve Bank panel stated the resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse selection incentives that compounded the system’s losses. ^{[^^11]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-10)

There also were state-chartered S&Ls that failed. Some state insurance funds failed, requiring state taxpayer bailouts.

[edit] Home State Savings Bank of Cincinnati

In March 1985, it came to public knowledge that the large Cincinnati, Ohio-based Home State Savings Bank was about to collapse. Ohio Gov. Dick Celeste declared a bank holiday in the state as Home State depositors lined up in a "run" on the bank's branches to withdraw their deposits. Celeste ordered the closure of all the state's S&Ls. Only those that were able to qualify for membership in the Federal Deposit Insurance Corporation were allowed to reopen.^{[^^12]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-11) Claims by Ohio S&L depositors drained the state's deposit insurance funds. A similar event took place in Maryland.

[edit] Midwest Federal Savings & Loan of Minneapolis, Minnesota

Midwest Federal Savings & Loan was a federally chartered savings and loan based in Minneapolis, Minnesota until its failure in 1990.^{[^^13]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-12) The *St. Paul Pioneer Press* called the bank's failure the "largest financial disaster in Minnesota history."^[citation ^needed]

The chairman, Hal Greenwood Jr., his daughter, Susan Greenwood Olson, and two former executives, Robert A. Mampel, and Charlotte E. Masica, were convicted of racketeering that lead to the institution's collapse. The failure cost taxpayers $1.2 billion.^{[^^14]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-13)

Lincoln Savings and Loan

The Lincoln Savings led to the Keating five political scandal, in which five US senators were implicated in an influence-peddling scheme. It was named for Charles Keating, who headed Lincoln Savings and made $300,000 as political contributions to them in the 1980s. Three of those senators—Alan Cranston (D-CA), Don Riegle (D-MI), and Dennis DeConcini (D-AZ)—found their political careers cut short as a result. Two others—John Glenn (D-OH) and John McCain (R-AZ)—were rebuked by the Senate Ethics Committee for exercising "poor judgment" for intervening with the federal regulators on behalf of Keating.^{[^^15]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-az-keating-14)

[edit] Silverado Savings and Loan

Silverado Savings and Loan collapsed in 1988, costing taxpayers $1.3 billion. Neil Bush, son of then Vice President of the United States George H. W. Bush, was on the Board of Directors of Silverado at the time. Neil Bush was accused of giving himself a loan from Silverado, but he denied all wrongdoing.^{[^^16]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-15)

The US Office of Thrift Supervision investigated Silverado's failure and determined that Neil Bush had engaged in numerous "breaches of his fiduciary duties involving multiple conflicts of interest."Although Bush was not indicted on criminal charges, a civil action was brought against him and the other Silverado directors by the Federal Deposit Insurance Corporation; it was eventually settled out of court, with Bush paying $50,000 as part of the settlement, the *Washington Post* reported.^{[^^17]^}(http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_note-WP-12-28-03-16)

As a director of a failing thrift, Bush voted to approve $100 million in what were ultimately bad loans to two of his business partners. And in voting for the loans, he failed to inform fellow board members at Silverado Savings & Loan that the loan applicants were his business partners.^[citation ^needed]

Neil Bush paid a $50,000 fine and was banned from banking activities for his role in taking down Silverado, which cost taxpayers $1.3 billion. A Resolution Trust Corporation Suit against Bush and other officers of Silverado was settled in 1991 for $26.5 million.

American Financial Corporation

While officially an outside lawyer, Keating functioned as a public face for Carl Lindner and American Financial Corporation and the two were close associates on business as well as legal matters;^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) Lindner would sometimes refer to Keating as a "founder" of American Financial.^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) The company had easy access to credit lines, which allowed it to continually grow.^{[^^26]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-94-25) The web of transactions involving the company and its subsidiaries was large and complex, and one stock analyst later said in 1977 that he had "never come across a company that has so much strange paper on its books."^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)

Keating left his law practice in 1972 and formally joined American Financial Corporation, by now a $1 billion enterprise, as executive vice president.^{[^^48]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-47) Keating became Lindner's hatchet man, in charge of firing employees from newly acquired companies.^{[^^49]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-48) Within business circles Keating gained a reputation for aggressiveness and arrogance.^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) Keating also took on an operational involvement in *The Cincinnati Enquirer*, the town's only morning newspaper.^{[^^37]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt100972-36) To some on the paper, he interfered in editorial decisions, such as adding coverage to high school sports that he or Lindner's sons were involved in.^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) The paper was then sold to a group including his brother William,^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) who had been a Republican congressman from Ohio's 1st congressional district in the early 1970s. Keating was involved in American Financial's 1974 sale of Bantam Books^{[^^50]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-49) and its decision that year not to enter the investment banking field.^{[^^51]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-50)

By 1975 and 1976, several stockholder lawsuits were filed against American Financial, and Keating was under fire for aspects involving unsecured loans, stock warrants, and the sale of the Enquirer.^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) The Securities and Exchange Commission launched a major investigation of the company and charged Lindner, Keating, and others with having defrauded investors for their own benefit and filing false SEC reports.^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt070379-51)^{52]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt070379-51) At particular issue was a $14 million loan that the SEC said was made on preferential terms.^{[^^10]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-day-130-9)

Keating resigned from American Financial in August 1976, with conflicting stories regarding the reason and whether he remained close to Lindner or had a falling out with him.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)^{41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-130-52)^{53]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-130-52)

[edit] American Continental Corporation

Keating moved to Phoenix, Arizona, in 1976^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7) to run the real estate firm American Continental Homes, a struggling, millions-losing homebuilding spin-off of American Financial that was given over to Keating for $300,000 as part of his departure package.^{[^^10]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-day-130-9)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)^{41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-130-52)^{53]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-130-52) The move was competed when his family followed him in 1978.^{[^^53]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-130-52) In 1979 the SEC case with American Financial was settled,^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) with Keating signing a consent agreement where he neither admitted nor denied guilt but agreed not to violate federal fraud and securities statutes.^{[^^52]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt070379-51)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53)^{54]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53) In practice, Keating was blamed for much of the irregular financial practices that had gone on and his reputation was significantly damaged.^{[^^55]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-139-54)

Meanwhile, Keating benefitted from the move to Arizona, a wide-open territory in both a physical and business sense that allowed someone a fresh start.^{[^^56]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-az-55) He turned the now-renamed American Continental Corporation around, adding various operations and divisions in a structure somewhat reminiscent of American Financial.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) As chairman and controlling stockholder, Keating relied heavily upon family members, employing his son and four of his sons-in-law in prominent positions.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) His son Charles Keating III had an especially fast career rise within the company.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)

During 1979, Keating served as head of fundraising in the Southwest for John Connally's campaign for the 1980 Republican Party presidential nomination.^{[^^57]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo120779-56) Connally was a favorite of the business community, but his campaign had difficulty parlaying its fundraising successes into popular support. In early December 1979, Keating was named campaign manager, with the existing manager being demoted to campaign strategist.^{[^^57]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo120779-56)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo031080-57)^{58]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo031080-57) Keating's first action was as a "pruner" who immediately fired twenty workers at the campaign's Virginia headquarters.^{[^^57]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo120779-56) The campaign continued to struggle, and by late February 1980, Keating was out as manager, with Connally taking over the role himself.^{[^^59]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-58) Connally's campaign ended two weeks later, famously known for having spent $11 million and gaining only one delegate.^{[^^58]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-wapo031080-57)

Having won the 1980 election, President Ronald Reagan contacted Keating about becoming U.S. Ambassador to the Bahamas, where Keating had spent considerable time.^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) When Keating's run-in with the SEC resurfaced in press reports, however, he was dropped from consideration.^{[^^10]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-day-130-9)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) This dismayed Keating, who subsequently said, "To keep people like me out of positions like that because of yellow journalism, I don't know what good it does."^{[^^10]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-day-130-9)

By the early 1980s, American Continental's profits were in the millions^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) and it had become the biggest single-family home builder in Phoenix and Denver.^{[^^55]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-139-54) At its peak it would have $6 billion in assets, a large number of subsidiaries, 2,500 employees, and a headquarters complex on Phoenix's Camelback Road.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) It also had three corporate jets and a helicopter.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7) Keating was a very hard worker and a strong presence to his employees; one later said, "It's almost magnetic. When he moves, things happen. The office would come alive when he walked in."^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) He inspired both camaraderie and fervent loyalty in them, and while he demanded long hours they were often rewarded them very well financially and with gifts.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) Business people outside his company, however, often found Keating arrogant and difficult to deal with.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40)^{41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) Former Congressman William Keating, who was as well-liked as his brother was not,^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) said: "Charlie is impatient, aggressive, always on the move. He has clearly defined goals. I don't think he worries about the popularity of his positions."^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7) A 1977 *Fortune* magazine profile had reported that "It seems almost impossible to find anyone who actually likes Charlie Keating."^{[^^41]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-fort-77-40) The story long rankled Keating, who later had over five thousand large yellow "I Like Charlie Keating" buttons made up which he handed out to employees and visitors.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-131-59)^{60]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-131-59)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt091891-60)^{61]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt091891-60) Keating said, "There are a lot of people that would say nasty things, I'm sure, about me, but it ain't true that nobody ever liked Charlie Keating."^{[^^60]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-131-59)

Still deeply religious, Keating became a heavy giver to charity when he moved to Phoenix, donating $100,000 to the Society of Saint Vincent de Paul, more than $1 million to Covenant House, and another more than $1 million to Mother Teresa's operations, including lending her his helicopter when she was in Arizona so that she could visit remote Indian reservations in the state.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) Covenant House's Father Bruce Ritter said of Keating, "He makes you believe in Providence."^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)

In 1983, Keating and his companies made legal but unusually large campaign donations in races for the Phoenix City Council, who were responsible for approving his building projects^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) including water usage for residential developments built around artificial ponds.^{[^^62]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-61) The scale of donations represented a change from past practice in local Phoenix politics; some council figures opposed the trend, while others readily asked for the funds.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)

[edit] Lincoln Savings and the Keating Five

[edit] Failure of Lincoln and American Continental

Lincoln stayed in business; from mid-1987 to April 1989, its assets grew from $3.91 billion to $5.46 billion.^{[^^66]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt070989-65) Following Keating's past practices with Lindner, American Continental also amassed a large collection of confusingly connected subsidiaries in real estate, banking, and insurance businesses; these numbered at least 54, and there were some overseas ones that auditors were not aware of.^{[^^78]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-77) Keating was triumphant in having defeated the regulators, whom he despised as useless relics from an outmoded financial past, and defended his high salary and business practices.^{[^^54]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-78)^{79]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-78) Keating spent about $500,000 on radio advertisements in the Phoenix area to improve his public image; the commercials stressed his real estate projects and his family-oriented values.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7) A 1988 *Los Angeles Times* profile assessed Keating as "a businessman without apparent peer in Arizona in terms of riches, clout and color."^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7) While Keating had taken Citizens for Decency through Law with him,^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) he had generally deemphasized his anti-pornography work when he moved to Arizona.^{[^^10]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-day-130-9) Nevertheless, X-rated movies and Playboy magazine were banned from his hotels.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)

In October 1988, Keating opened his most extravagant real estate project ever, the 250 acres (1.0 km²⁾, 600-room The Phoenician resort at the base of Camelback Mountain.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-79)^{80]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-79) Its construction cost $300 million, included many opulent, imported features, and saw a number of instances of Keating or his decorator wife making wholesale late design changes at great expense.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-dmr032199-80)^{81]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-dmr032199-80) Keating's other grand project was Estrella, a 20,000 acres (81 km²) mixed-use development outside of Phoenix in Goodyear, Arizona in the direction of the Sierra Estrella.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) Incorporating homes, offices, industrial buildings, schools, shopping, a resort and a hospital, it was intended to eventually house 200,000 people and become a model 21st century city.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26) American Continental wrote rules saying that Estrella homeowners could not "intentionally terminat[e] a human pregnancy" or possess "adult material", but removed them once Keating was informed that such covenants were unconstitutional.^{[^^8]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-lat031388-7)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) A late 1980s downturn in the Sun Belt real estate market put Estrella in jeopardy before much building could be done.^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)

Asked in an interview if he ever worried about going broke, Keating responded, "All the time, every day. I come into the office with this hollow feeling in my stomach lots of time. ... You get trapped almost. You get too many responsibilities. It's a bellyfull to carry. It's risky. Dangerous. There's the possibility of failure with it every day and every night. But in a way, it's a challenge. It's invigorating. There isn't any point in not being a player – you're here. ... It's not only the money. It's the disgrace, yourself, your manhood. I'm not sure I'd have a big problem with that. On the other hand I'm not sure I wouldn't."^{[^^54]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53)

As Lincoln grew, money was siphoned from Lincoln to the parent American Continental Corporation under a variety of schemes, and American Continental spent lavishly on speculative investments and personal expenses.^{[^^54]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53) A new regulatory investigation began in July 1988.^{[^^54]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-2-53) After Arthur Young indicated doubts about some accounting practices, Keating fired them in September 1988 and switched to Touche Ross.^{[^^75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74) American Continental was desperate for cash inflow to make up for losses in real estate purchases and projects.^{[^^82]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt113089-81) Lincoln's branch managers and tellers convinced customers to replace their federally-insured certificates of deposit with higher-yielding bond certificates of American Continental; the customers later said they were never properly informed that the bonds were uninsured and very risky given the state of American Continental's finances.^{[^^82]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt113089-81) Indeed, the regulators had already adjudged the bonds to have no solvent backing.^{[^^83]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-Seidman-82) FDIC chair L. William Seidman would later write that Lincoln's push to get depositors to switch was "one of the most heartless and cruel frauds in modern memory."^{[^^83]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-Seidman-82) In late 1988, Keating began desperate attempts to sell Lincoln; regulators rejected one $50 million potential sale due to the buyers not meeting federal requirements.^{[^^75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74) A December 1988 audit by the FHLBB found Lincoln in violation of many regulations and in danger of default.^{[^^75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74) The following month they ordered Keating to stop transferring cash from Lincoln to American Continental, which imperiled the latter's survival strategy and caused its stock price to nosedive.^{[^^27]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-cincmag-89-26)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74)^{75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74) Keating tried to arrange junk bond deals with Michael Milken and place bets in the global currency markets to generate cash, but the moves failed and he lost $11 million in one month alone.^{[^^75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74) Keating got Senators DeConcini and Cranston to pressure the regulators to let a sale go through, but this time the lawmakers were ignored.^{[^^75]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-mess-sugar-74)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-83)^{84]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-83)

American Continental went bankrupt in April 1989, and Lincoln was seized by the FHLBB.^{[^^69]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt-who-68) About 23,000 customers were left with worthless bonds.^{[^^85]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt121391-84) Many investors, often ones living in California retirement communities, lost their life savings, and later claimed to have suffered emotional trauma for having been duped on top of their financial devastation.^{[^^82]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt113089-81)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt091990-85)^{86]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt091990-85) The total bondholder loss came to between $250 million and $288 million.^{[^^85]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-nyt121391-84)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-Tolchin-86)^{87]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-Tolchin-86) The federal government was eventually liable for $3.4 billion to cover Lincoln's losses when it seized the institution.^{[^^88]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-87) In talking to reporters in April 1989, Keating maintained that he was the victim of a federal government that had spent years trying to destroy him,^{[^^89]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-88) and then said, "One question, among many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so."^{[^^90]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-89)

In September 1989, Keating was hit with a $1.1 billion fraud and racketeering action, filed against him by the regulators.^{[^^91]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-90) He proclaimed that, "We've lost everything in this thing, my wife and I. It's devastating."^{[^^92]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-91) In November 1989, Keating was subpoenaed to testify before the House Banking Committee, but refused to answer questions, invoking his right against self-incrimination under the Fifth Amendment.^{[^^93]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-92) Also in November, his Phoenician Resort was seized by the FBI; under their operation it became known as "Club Fed" before later being sold to a Kuwaiti group.^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-dmr032199-80)^{81]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-dmr032199-80)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-406-93)^{94]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-406-93) The vastly ambitious Estrella project would remain desert^{[^^15]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ct-part-1-14) and was sold in 1993 to an investment group.^{[^^95]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-94)

By November 1989, the estimated cost of the overall savings and loan crisis had reached $500 billion, and the media's coverage often highlighted Keating's role as part of what became a feeding frenzy.^{[^^96]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-kurtz-95) Indeed, Keating and Lincoln Savings became convenient symbols for arguments about what had gone wrong in America's financial system and society,^{[^^97]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-389-96) as well as for 1980s greed in general,^{[^^14]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-ce020706-13) and were featured in popular culture references.^{[^^97]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-389-96)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-TV.com:Simpsons-97)^{98]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-TV.com:Simpsons-97) A deck of playing cards would be marketed, called "The Savings and Loan Scandal", that featured on their face Charles Keating holding up his hand, with images of the Keating Five senators portrayed as puppets on his fingers.^{[^^67]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-az-keating-66)^{[^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-389-96)^{97]^}(http://en.wikipedia.org/wiki/Charles_Keating#cite_note-trust-389-96)

[edit] Legal consequences

http://en.wikipedia.org/wiki/Carl_Lindner,_Jr.

The Office of Thrift Supervision (OTS) was a United States federal agency under the Department of the Treasury that chartered, supervised, and regulated all federally chartered and state-chartered savings banks and savings and loans associations.It was created in 1989 as a renamed version of another federal agency (that was faulted for its role in the savings and loan crisis). Like other U.S. federal bank regulators, it was paid by the banks it regulated.The OTS was initially seen as an aggressive regulator, but was later lax. Declining revenues and staff led the OTS to market itself to companies as a lax regulator in order to get revenue.

The OTS also expanded its oversight to companies that were not banks. Some of the companies that failed under OTS supervision during the financial crisis of 2007–2010 include American International Group (AIG), Washington Mutual, and IndyMac.

The OTS was implicated in a backdating scandal regarding the balance sheet of IndyMac. Reform proposals from Henry Paulson, President Barack Obama, and the U.S. Congress proposed to merge the OTS with the Office of the Comptroller of the Currency. Section 312 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated merger of OTS with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors, and the Consumer Financial Protection Bureau (CFPB) as of 21 July 2011. The OTS ceased to exist on 19 October 2011.

[hide]

Funding

OTS did not receive a government budget; instead, they were funded by the banks they regulate, like other U.S. federal bank regulators.^[1] Other regulatory agencies like the OTS include the Office of the Comptroller of the Currency, the FDIC, the Federal Reserve System, and the National Credit Union Administration.

If banks regulated by OTS fail, revenues for the agency decline; conversely, if the OTS regulates more banks, revenues increase.^[1]

History

The OTS was established in 1989 in response to the savings and loan crisis. On television, President George H. W. Bush said,

“

never again will America allow any insured institution operate without enough money

”

and "trashed" the predecessor Federal Home Loan Bank Board; soon thereafter, the sign was changed to the "Office of Thrift Supervision".^[2] Savings and Loan legislation—the Financial Institutions Reform, Recovery and Enforcement Act of 1989—"abolished",^[3] or renamed, the independent Federal Home Loan Bank Board to the Office of Thrift Supervision and placed it under Department of the Treasury supervision.^[4] On 22 March 1990, in a setback to the George H. W. Bush Administration, Federal District Judge Royce C. Lamberth ruled that OTS appointments of the former director and acting director, M. Danny Wall and Salvatore R. Martoche, had been unconstitutional because they were not nominated by the President and confirmed by the Senate.^[5]

In 1992, under Director T. Timothy Ryan, the OTS aggressively shut down troubled Savings and Loan (S&L) outfits, and was criticized by the industry and industry lawyers for not allowing some S&Ls that might survive to have a chance.^[6] Ryan contrasted the OTS cleanup of the S&L industry to the former situation.

“

We're the regulator of the industry. We aren't the trade association and we're not its promoter. That's how they got into trouble the last time. They had a regulator who was a promoter.

”

S&Ls were "dropping like flies" and this presented problems for OTS staff—declining revenues led to a declining staff.^[1] The OTS responded by marketing itself at industry meetings.^[1] At one such meeting, federal regulators were "announcing a campaign to ease regulation" and they were in a photo-op over a stack of the federal regulations—holding garden shears signaling their intent to cut through them.^[1] OTS Director James Gilleran brought a chainsaw.^[1] "Companies got the message."^[7] In 1998, OTS approved 43 charters, with more than a third going to non-banks.^[8] In 2004 Gilleran said "our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion".^[9] The OTS "adopted an aggressively deregulatory stance toward the mortgage lenders it regulated... [and] allowed the reserves the banks held as a buffer against losses to dwindle to a historic low."^[9]

In March 2007, a **Government Accountability Office** report noted that "In contrast to the [Federal Reserve], a substantial minority of the firms OTS oversees—especially the large, complex ones—have primary businesses other than those traditionally engaged in by thrifts, such as insurance, securities, or commercial activities."^[10]

Section 312 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated merger of OTS with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, and the Consumer Financial Protection Bureau (CFPB) as of 21 July 2011. The OTS ceased to exist on 19 October 2011.

The end of the OTS prompted at least one thrift, Thrivent Financial for Lutherans, to convert to a credit union rather than meet the "strict" insurance regulations set forth in the Dodd-Frank Act.^[11]

Reform

In 2008, then Treasury Secretary Henry Paulson proposed merging the OTS with the Office of the Comptroller of the Currency.^[12]
On 17 June 2009 President Barack Obama announced that he would ask the United States Congress to merge OTS into the Office of the Comptroller of the Currency, which regulates federally chartered banks.^[13]
In 2009, both the House and Senate proposals included merging OTS with the Office of the Comptroller of the Currency.^[14]
In 2010, the US Senate passed legislation that would strengthen oversight of large financial institutions, but would continue to allow smaller banks to shop for their own regulator, a loophole sought by the Independent Community Bankers of America and the American Bankers Association.^[15]

Responsibilities

OTS supervised holding companies as well as thrift institutions. This resulted in OTS providing consolidated supervision for such well-known firms as General Electric (GE), AIG, Inc., Ameriprise Financial, American Express, Morgan Stanley, and Merrill Lynch. OTS's consolidated supervision program for GE, AIG Inc., and Ameriprise was recognized as "equivalent" by the European Union—allowing these firms to operate their financial businesses in the EU without forming an EU holding company and submitting to supervision in the EU.

The OTS was the primary regulator of Federal Savings Associations (sometimes referred to as Federal thrifts). Federal savings associations include both Federal Savings Banks and Federal Savings and Loans. The OTS was also responsible for supervising Savings and Loan Holding Companies (SLHCs) and some state-chartered institutions.

Institutions regulated

The following are some of the larger institutions that were regulated by the OTS:

American Express Bank, FSB – Salt Lake City, UT
American International Group – New York City, NY (Note 4)
Astoria Federal Savings and Loan Association – Long Island City, NY
BankUnited, FSB – Coral Gables, FL now (BankUnited)
Capital One, F.S.B. – McLean, VA (Note 1)
Chevy Chase Bank, Federal Savings Bank – McLean, VA
Citicorp Trust Bank, FSB – Wilmington, DE
Citizens Bank of Pennsylvania – Philadelphia, PA
Countrywide Bank, FSB - Alexandria, VA (Note 2 - now a part of Bank of America)
Downey Savings, F.A. – Newport Beach, CA (now a part of US Bank)
E-Trade Bank – Arlington, VA
Flagstar Bank, FSB – Troy, MI
Guaranty Bank – Austin, TX
H&R Block Bank - Kansas City, MO
Hudson City Savings Bank, FSB – Paramus, NJ
IndyMac Bank, FSB – Pasadena, CA (Note 3)
ING Bank, FSB – Wilmington, DE
New York Community Bank – Flushing, NY
Ohio Savings Bank / Amtrust – Cleveland, OH
PFF Bank & Trust - Rancho Cucamonga, CA (Note 2 - now part of US Bank)
Sovereign Bank – Wyomissing, PA
USAA Federal Savings Bank – San Antonio, TX
Washington Mutual FSB - Seattle, WA (Note 2 - now a part of JPMorgan Chase)
Wilmington Savings Fund Society, FSB - Wilmington, DE

Indymac

In March 2008, OTS Director John M. Reich stated that the Savings and Loan industry remained vibrant due to the effectiveness of regulators.^[16] Reich blamed Indymac's 11 July 2008 failure on $1.3bn of withdrawals in the fortnight following concerns raised from Senator Chuck Schumer over the bank's solvency.^[17][18]Schumer faulted the OTS.^[19] The failure of IndyMac Bank was the fourth largest bank failure in United States history.^[20] Prior to IndyMac's failure on 11 July 2008, the bank had come to rely heavily on higher cost, less stable, brokered deposits, as well as secured borrowings, to fund its operations. The bank had focused on stated income and other aggressively underwritten loans in areas with rapidly escalating home prices, particularly in California and Florida.^[21]

On 21 July 2008, Mr. Reich described "interference with the regulatory process by reporting and disseminating speculation about the condition of financial institutions, thereby undermining public confidence in those institutions and causing serious harm" as a contributor to the failure of IndyMac as well as Fannie Mae, Freddie Mac and Lehman Brothers.^[22]

On 22 December 2008, Mr. Reich removed his agency's western director, Darrel W. Dochow for allowing IndyMac to backdate a capital infusion of $18 million from its parent company so that the bank would appear "well capitalized" in its 10-Q for the period ending 31 March 2008. According to a source with knowledge of the incident, at another point Mr. Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets, overruling the advice of others in the agency.^[23]Mr. Dochow played a central role in the savings-and-loan scandal of the 1980s, overriding a recommendation by federal bank examiners in San Francisco to seize Lincoln Savings, the giant savings and loan owned by Charles Keating. Mr. Reich called the backdating irregularity “a relatively small factor” in the collapse of IndyMac.^[24]

On 12 February 2009, Mr. Reich resigned, announcing he would step down 27 February.^[25]

On 26 February 2009, the Treasury Department's inspector general released a report citing laxity at the OTS under Reich for adding significantly to the $10.7 billion in FDIC losses from the IndyMac failure, as well as the estimated $270 million in losses suffered by uninsured depositors.The report concluded that, under the law, OTS should have taken Prompt Corrective Action against IndyMac in May 2008.^[26] Commenting on the report, Inspector General Eric Thorson dismissed Reich's claim that Senator Schumer's letters caused the failure. Marla Freedman, the assistant inspector general for audit, detailed a pattern of excess risk-taking and abuse of the lending process at IndyMac and the OTS's consistent and concurrent failure to act. Mr. Reich said in a letter to the inspector general that he agreed with the agency's filings.^[27]

On 27 February 2009, Mr. Reich stepped down amidst the continuing audit of backdating at IndyMac and four other institutions.^[28] Scott Polakoff, OTS senior deputy director and chief operating officer, hired under Mr. Reich, became acting director on his departure.

On 26 March 2009, Polakoff was removed and placed on leave by United States Secretary of the Treasury Timothy Geithner, amidst an announced further review and investigation of the backdating scandal by the U.S. Treasury's Inspector General.^[29]

AIG

The OTS was pressed by the Senate Banking Committee to admit partial blame for the failure of American International Group (AIG).^[30] In a congressional hearing, after Donald Kohn described how there was no regulator for AIG Financial Products or the company overall, Scott Polakoff interrupted.^[31][32] Polakoff stated that it was time for the OTS to take some responsibility because they had been "deemed an acceptable regulator for both US domestic and international operations".^[33]

Due to OTS regulation of AIG, the Mayfair-based (London, UK) AIG Financial Products division was not subject to Financial Services Authority regulation.^[34] OTS regulation allowed France's Commission Bancaire to grant approval for a Paris-based banking subsidiary, Banque AIG. The Mayfair-based AIG Financial Products division then opened under a system which allowed branch openings in member countries after one EU regulator's approval.

That OTS was the primary regulator of AIG has been described as "nonsense"^[35] and compared to "the super-heavyweight of the world going up against the 65 lb, 13-year-old, class weakling".^[36] AIG operates in 130 countries.^[37] The OTS had a small division that monitored derivatives including the credit default swaps at AIG.^[38]After a dispute with Goldman Sachs in 2007 over the value of the credit default swaps,^[39] the OTS did not initiate formal enforcement action, but "periodically raised concerns with AIG managers".^[38] Other sources of concern were the three credit rating agencies and AIG's auditor PricewaterhouseCoopers.^[39] In March 2008, after AIG disclosed valuation problems, the OTS sent a letter to AIG requesting a "corrective action plan" in 30 days.^[38] The division overseeing AIG Financial Products was "quietly disbanded" and AIG missed their deadline.^[38]

Locations

In addition to being headquartered in Washington D.C., OTS had regional offices in Atlanta, Dallas, Jersey City, San Francisco, and Chicago.

US bank regulator retires amid fraud scandal

By Barry Grey

12 March 2009

On February 27, Darrel W. Dochow quietly retired from his job at the US Treasury Department's Office of Thrift Supervision. Over more than two decades, Dochow compiled a record as a bank regulator that epitomizes the corrupt relationship between government agencies and the banks they nominally police that has played a significant role in the financial collapse and resulting global depression.

Dochow was removed from his post as West regional director of the Office of Thrift Supervision last December after an investigation by the Treasury Department's Inspector General's Office found that in May of 2008 he had allowed IndyMac Bank of Pasadena, California to falsify its financial filings with the government in order to conceal the bank's perilous capital position. Two months later IndyMac, which specialized in high-risk, high interest home loans, collapsed after a run on the bank by depositors and was seized by the Federal Deposit Insurance Corporation, at an estimated cost of $9 billion to US taxpayers.

At the time the third biggest bank failure in US history, the IndyMac collapse wiped out an estimated $300 million in depositors' savings. By colluding with the bank's management to conceal its losses and continue luring investors and ordinary depositors with high interest rates,Dochow helped raise the ultimate cost of the bailout by perhaps billions of dollars and increase the losses suffered by depositors by many millions.

Dochow continued to draw his lucrative salary even after he was removed from his high-level position. According to government reports, he earned $230,000 in 2007. A March 5 report by ABC News on Dochow's retirement concluded, "Dochow is not expected to go to prison."

At the time of the IndyMac collapse, depositors were enraged when they learned that two decades earlier Dochow, then head of supervision and regulation at the Federal Home Loan Bank Board in Washington, had intervened to veto calls by regional regulators to investigate Irvine, California-based Lincoln Savings & Loan.

Lincoln collapsed in 1989 with losses of $3.4 billion, making it the biggest of more than 700 thrift institution failures in the late 1980s and early 1990s that ultimately cost taxpayers over $130 billion in a government bailout and wiped out the life savings of tens of thousands of families. Lincoln's CEO, Charles Keating, went to prison in the biggest financial scandal in US history—until the current crisis.

Dochow was eventually demoted but then worked his way up through the ranks of the Office of Thrift Supervision, which replaced the Home Loan Bank Board, and was promoted in September of 2007 to the top position at the agency's western division.

After the IndyMac failure, the Office of Thrift Supervision categorically defended Dochow. Its spokesman declared, "The OTS has the highest confidence in Regional Director Darrel Dochow. Any attempt to draw parallels between the events of 2008 and two years ago is a stretch, at best. There is no valid comparison."

Among other failed banks that Dochow supervised were the giant subprime mortgage lender Countrywide Financial, Downey Savings & Loan and Washington Mutual. The latter, the sixth largest bank in the US, was the biggest bank failure in American financial history. It occurred in September of 2008, two months after the IndyMac collapse, while Dochow was still in charge.

IndyMac was a spin-off of Countrywide Financial, initially headed by Countrywide's founder and long-time CEO Angelo Mozilo. Until the collapse of the housing bubble, it raked in profits and gave investors high returns by marketing so-called "Alt-A" home loans, otherwise known as "liar loans" because they required no documentation of the borrower's income or assets.

Last December, the Treasury Department's inspector general, Eric Thorson, sent a letter to members of Congress summing up his findings on Dochow's role in the IndyMac failure. He explained that in a telephone conference call in May of 2008, Dochow approved IndyMac's request to backdate a just-received cash infusion of $18 million from its parent company to the end of March. The purpose of this bit of accounting fraud was to enable the bank to file a first-quarter report with regulators that would show the bank having, as of March 31, sufficient reserve capital to obtain a "well-capitalized" rating.

Without such a rating, the bank would be prohibited from gathering deposits through brokers who funnel money from investors around the country. IndyMac was heavily reliant on such funds, and without them it faced imminent collapse. With Dochow's blessing, IndyMac filed a false first-quarter report and retained its "well-capitalized" rating.

It is a crime to knowingly make false statements in the financial records of a public company.

The Washington Postreported December 23 in an article on Thorson's letter to Congress that Dochow's machinations with IndyMac went further. "At another point last spring," wrote the Post, "Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets, overruling the advice of others in the agency, according to a source with knowledge of the incident."

In its March 5 report on Dochow's retirement, ABC News said: "In at least one instance, investigators say,banking regulators actually approached [IndyMac] with the suggestion of falsifying deposit dates to satisfy banking rules—even if it disguised the bank's health to the public."

In his letter, Thorson said the Office of Thrift Supervision—which is financed from fees paid by the institutions it supervises—allowed other banks besides IndyMac to make similar revisions to financial statements, although the letter gave no details of other examples. The Washington Postarticle from December reported that when asked at a briefing with members of Congress "whether he would describe the problem as ‘systemic,' Thorson responded, ‘Yes,' according to a congressional aide who attended the briefing."

Certain questions immediately arise from this litany of official corruption and criminality. How was it possible that an individual compromised in the Lincoln Savings & Loan scandal could reemerge in a top regulatory position? Why have Dochow's machinations been given so little media attention? Why are Congress and the Obama administration refusing to sound the alarm and conduct serious public investigations and criminal prosecutions of those involved in "systemic" fraud?

The basic answer is that Dochow is not an aberration, but rather one example of financial fraud and government collusion that are pervasive in the US economic and political system. Three decades of banking deregulation, carried out by both Democratic and Republican administrations in order to facilitate a growth of financial parasitism and the enrichment of a financial aristocracy, have transformed government regulatory agencies into facilitators of criminal activity.

The real role of agencies such as the Office of Thrift Supervision and the Securities and Exchange Commission (SEC), whatever their official mandates, is to aid and abet the redistribution of wealth from the bottom to the top of society and run interference for the big banks and financial interests. Their leading personnel are selected accordingly. Dochow was promoted to oversee banks on the West Coast because his record proved his suitability for this job.

There is, moreover, a well-established revolving door between bank regulatory agencies and Wall Street, with regulators using their government positions as a stepping stone to landing plum jobs in the private sector with seven-figure compensation packages.

Other recent cases of financial fraud on a gigantic scale exemplify the same corrupt relationships. Billionaire Texas businessman Robert Allen Stanford, charged by the SEC last month with operating a $9 billion Ponzi scheme, was able to operate with impunity for years because he enjoyed the support of top politicians from both parties, to whose campaign coffers he contributed $1 million—78 percent of it going to Democrats. The Washington Postlast month quoted an SEC official in Fort Worth, Texas who reported that after beginning an earlier investigation into Stanford's suspicious investment schemes, "the SEC ‘stood down' at the request of another federal agency."

Bernard Madoff, a Wall Street "legend" and former head of the Nasdaq Stock Market, who is expected to plead guilty today of running a Ponzi scheme that collapsed last December, with losses estimated by the government at $65 billion, was shielded for years by the SEC and other regulators. Since 2000, he has given at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party's candidates, including New York Senator Charles Schumer, the chairman of the Joint Economic Committee of Congress.

Beginning in 1999, Harry Markopolos, an executive in the securities industry, repeatedly urged the SEC to investigate Madoff. "Madoff Securities is the world's largest Ponzi scheme," he wrote in one letter to the SEC. Other investment firms steered their clients away from Madoff.

The SEC, which had investigated and cleared Madoff in 1992, refused to intervene. On the contrary, Madoff was appointed to a committee of academics, regulators and executives formed in 2000 by then-SEC Chairman Arthur Levitt to advise the agency on new stock market rules in response to the growth of electronic trading.

The immense power of financial moguls like Madoff was underscored in congressional testimony by Markopolos last month. The whistleblower said he feared for his safety during the years he sought unsuccessfully to convince regulators to investigate Madoff's operations. "We knew that he was one of the most powerful men on Wall Street," he said, "and in a position to easily end our careers, or worse."

At a business roundtable meeting in 2007, Madoff boasted of his "very close" relationship with regulators, chuckling as he added, "In fact, my niece even married one."

bush family

The Bush family and the S&L Scandal

Neil, George Jr., George Sr., and Jeb Bush

The Savings and Loan industry had been experiencing major problems through the late 60s and 70s due to rising inflation and rising interest rates. Because of this there was a move in the 1970s to replace the role of S&L institutions with banks.

In the early 1980s, under Reagan, regulatory changes took place that gave the S&L industry new powers and for the first time in history measures were taken to increase the profitability of S&Ls at the expense of promoting home ownership.

A history of the S&L situation can be found here:

http://www.fdic.gov/bank/historical/s&l/

What is important to note about the S&L scandal is that it was the largest theft in the history of the world and US tax payers are who was robbed.

The problems occurred in the Savings and Loan industry as they relate to theft because the industry was deregulated under the Reagan/Bush administration and restrictions were eased on the industry so much that abuse and misuse of funds became easy, rampant, and went unchecked.

Additional facts on the Savings and Loan Scandal can be found here:

http://www.inthe80s.com/sandl.shtml

There are several ways in which the Bush family plays into the Savings and Loan scandal, which involves not only many members of the Bush family but also many other politicians that are still in office and still part of the Bush Jr. administration today. Jeb Bush, George Bush Sr., and his son Neil Bush have all been implicated in the Savings and Loan Scandal, which cost American tax payers over $1.4 TRILLION dollars (note that this is about one quarter of our national debt).

Between 1981 and 1989, when George Bush finally announced that there was a Savings and Loan Crisis to the world, the Reagan/Bush administration worked to cover up Savings and Loan problems by reducing the number and depth of examinations required of S&Ls as well as attacking political opponents who were sounding early alarms about the S&L industry. Industry insiders were aware of significant S&L problems as early 1986 that they felt would require a bailout. This information was kept from the media until after Bush had won the 1988 elections.

Jeb Bush defaulted on a $4.56 million loan from Broward Federal Savings in Sunrise, Florida. After federal regulators closed the S&L, the office building that Jeb used the $4.56 million to finance was reappraised by the regulators at $500,000, which Bush and his partners paid. The taxpayers had to pay back the remaining 4 million plus dollars.

Neil Bush was the most widely targeted member of the Bush family by the press in the S&L scandal. Neil became director of Silverado Savings and Loan at the age of 30 in 1985. Three years later the institution was belly up at a cost of $1.6 billion to tax payers to bail out.

The basic actions of Neil Bush in the S&L scandal are as follows:

Neil received a $100,000 "loan" from Ken Good, of Good International, with no obligation to pay any of the money back.

Good was a large shareholder in JNB Explorations, Neil Bush's oil-exploration company.

Neil failed to disclose this conflict-of-interest when loans were given to Good from Silverado, because the money was to be used in joint venture with his own JNB. This was in essence giving himself a loan from Silverado through a third party.

Neil then helped Silverado S&L approve Good International for a $900,000 line of credit.

Good defaulted on a total $32 million in loans from Silverado.

During this time Neil Bush did not disclose that $3 million of the $32 million that Good was defaulting on was actually for investment in JNB, his own company.

Good subsequently raised Bush's JNB salary from $75,000 to $125,000 and granted him a $22,500 bonus.

Neil Bush maintained that he did not see how this constituted a conflict of interest.

Neil approved $106 million in Silverado loans to another JNB investor, Bill Walters.

Neil also never formally disclosed his relationship with Walters and Walters also defaulted on his loans, all $106 million of them.

Neil Bush was charged with criminal wrongdoing in the case and ended up paying $50,000 to settle out of court. The chief of Silverado S&L was sentenced to 3.5 years in jail for pleading guilty to $8.7 million in theft. (Keep in mind that you can get more jail time for holding up a gas station for $50.)

Today Neil Bush is working on closing a deal in Florida, where his brother Jeb is governor, to sell a software package to schools with his startup company Ignite.

Update 11/28/2003: Some of Neil Bush's business deals have been exposed in his recent divorce case. For more on this see:

http://www.truthout.org/docs_03/112703A.shtml

http://www.salon.com/news/wire/2004/01/26/neil_bush/index.html

It should also be noted that shortly after news of Neil Bush’s involvement in the S&L scandal hit the press his father, George Bush Sr., announced the Desert Storm campaign in Iraq, which subsequently had the result of making Neil’s name quickly fade from the headlines. In addition, while Neil Bush's divorce proceeding were exposing more backroom Bush dealings, America was once again bombarded with war propaganda for Operation Iraq Freedom.

The S&L scandal is by no means the only incident of questionable, and actually illegal, financial activity that the Bush family has been involved in. The line of questionable, illegal, and unethical businesses practices goes back at least to Prescott Bush Sr., George Bush Sr.’s father. Prescott Bush was a Senator from 1952 – 1963. Previous to his time as a Senator Prescott was a banker and businessman. Prior to the American entry into WWII Prescott Bush was director of Union Banking Corporation. Union Banking Corporation helped to finance Hitler’s regime. The Concentration Camps of Nazi Germany were labor camps that the Nazis used to make products for their regime as well as for sale to raise money. Prescott profited directly from the Auschwitz labor camp.

In 1942, after Hitler declared war on America the United States government seized the Union Banking Corporation under the Trading with the Enemy Act as a front operation that was supporting the Nazis. Much of the profits from the operation were already pocketed by Prescott however, and $1.5 million was put in a trust fund for George Bush Sr.

For more on Prescott Bush's ties to the Nazis see:

http://www.guardian.co.uk/usa/story/0,12271,1312540,00.html

http://www.nhgazette.com/cgi-bin/NHGstore.cgi?user_action=detail&catalogno=NN_Bush_Nazi_2

The issues of WWII will be revisited again later.

This is actually just the tip of the iceberg as far as the Bush family and business dealings are concerned, the topic is a book in itself. In the interest of brevity I invite you to research the Bush family business ties yourself, including those in Saudi Arabia, where George Bush made millions as an oil well developer, and George Bush’s $14 million deal when he sold the Texas Rangers, while leaving tax payers footing the bill.

http://www.realchange.org/bushjr.htm#rangers

For information on Prescott Bush Jr.'s economic ties to China see:

http://www.usatoday.com/news/washington/2002/02/19/usat-prescott-bush.htm

http://rationalrevolution.net/war/bush_family_and_the_s.htm

http://www.counterpunch.org/bond03192010.html

To illustrate, Fannie Mae, Enron, Alliance Capital and Goldman Sachs were all crucial US imperial banksters, instrumental in generating the fictitious capital in real estate, energy and other sectors which proved so important to the Clinton-Bush era’s internal displacement and eventual amplification of crises. Goldman continues in this role today.

The first suffered Zoellick as its mid-1990s executive vice president, following his several-years stint as a senior aide in James Baker’s Treasury (at one point Deputy Assistant Secretary for Financial Institutions Policy), just prior to the 1988-90 Savings&Loan crisis, itself a function of the financial-deregulatory era that gave us mortgage-backed securities. By the middle of the last decade, Fannie Mae was so far in the red due to subprime lending through those securities, that a massive state bailout was needed.

wikifluff (see talk page

John M. Reich was sworn in January 15, 2001, as Director of the Federal Deposit Insurance Corporation (FDIC) following an appointment by President of the United States Bill Clinton and served on the FDIC Board for eight years. Reich served as Vice Chairman of the Board of the FDIC from November 2002 until he was nominated on June 7, 2005 by President George W. Bush to be Director of the Office of Thrift Supervision (OTS), and the U.S. Senate confirmed his nomination on July 29, 2005. He also served as Acting Chairman of the FDIC from July to August 2001. As Deputy Chairman, 2001–2005, Reich served as the Chair of FDIC's Audit Committee during a time when the General Accounting Office issued reportable conditions regarding information security at the Corporation.

Reich took the oath of Director of OTS on August 9, 2005 and continued in that capacity as well as serving as a member of the FDIC Board of Directors until he resigned on February 12, 2009 and stepped down February 27, 2009.^[1]

[hide]

OTS During and After Reich

Under Director Reich, the Office of Thrift Supervision saw the failure or near-failure of at least five major institutions - IndyMac Bank, AIG, Washington Mutual, Downey Financial and Countrywide Financial. These constituted some of the largest financial failures in modern history to that point. OTS later acknowledged that in the case of AIG it failed to take regulatory actions it should appropriately have taken as early as 2004.^[2] In the case of IndyMac, after Director Reich and OTS both denied responsibility for the failure, the Office of Inspector General of the United States Treasury found that OTS both inappropriately failed to act and inappropriately and knowingly allowed regulatory misconduct.

On June 17, 2009, President Barack Obama announced his intention to disband the Office of Thrift Supervision as part of a program of regulatory reform, citing "loopholes that have allowed important institutions to cherry-pick among banking rules".^[3]

Career highlights

Prior to coming to Washington, D.C., Reich spent 23 years as a community banker in Illinois and Florida, including 10 years as President and CEO of the National Bank of Sarasota, in Sarasota, Florida, which he led as it grew from a two-office, $17 million institution to a $450 million institution with 19 offices.

Reflecting on his community banking experience, Mr. Reich, then Director of OTS, said in remarks to the New York Bankers Association, New York, NY, April 6, 2006:^[4]

I am deeply concerned that community banks will continue to disappear from our landscape, with local communities and consumers across the country being the ultimate losers. The loss of these community human resources not only impacts local banking relationships with small businesses and individuals, it reduces human resources available for leadership of community service organizations on which senior bank officers and their directors serve. There is an unquantified social cost to industry consolidation that is attributable to the weight of accumulated regulatory burden. This is a growing problem in communities across the country, with implications that are largely ignored by policymakers.

Reich also served 12 years on the staff of U.S. Senator Connie Mack (R-FL), before joining the FDIC. From 1998 through 2000, he was Senator Mack's Chief of Staff, directing and overseeing all of the Senator's offices and committee activities, including those at the Senate Banking Committee.

Regulation and reform

An ardent foe of regulatory red tape, Reich dedicated much effort and public testimony toward reducing regulatory burdens on financial institutions and, beginning in 2005, led a three-year interagency review of all federal bank regulations, mandated under the Economic Growth and Regulatory Paperwork Reduction Act of 1996. Then Director of OTS, Reich championed more regulatory independence and discretion for his agency in the cause of efficiency and regulatory burden relief.^[5]

On April 6, 2006, Reich voiced his concern that banks were allowing an overall slippage in underwriting due to increased competition in certain market segments and geographical areas as banks tried to feed loan volumes after the real estate market peaked. He also cited the increased sales of alternative or nontraditional mortgage lending products like “interest-only” and “pay option” adjustable rate mortgage (ARMs). These loan products were legitimate and valuable, according to Reich, suggesting the main danger was from institutions with limited experience in these loans and managing the associated risks, particularly the inherent credit risks.^[4]However, of the five leading issuers of option adjustable-rate mortgages, three — IndyMac Bank, Washington Mutual and Downey Financial — would fail.^[6]Countrywide Financial, the largest, was forced to sell itself to Bank of America for a small fraction of its previous value or fail.^[7][8] AIG Financial Products, regulated by OTS, would also fail, . AIG FP was a major issuer of Credit Default Swaps related to the securitized, outstanding interest of these and other subprime loans.^[2][9]

On July 21, 2008, following the failure of IndyMac but before the failures of Washington Mutual, AIG and Downey Financial, Reich described his agency's "Financial Institution Reform Initiative":^[10]

I believe Congress should help create a level, scrupulous and well-regulated playing field so consumers and investors have confidence in the transparency, fairness and integrity of all mortgage originations. The standards of the under-regulated segments of the market must be raised to the level followed by the federally regulated segments. All entities that originate home loans should be required to comply with basic credit principles, such as conducting a reasonable assessment of each borrower’s ability to repay.

In those same remarks, he described the role he felt his agency should play:

Selecting a strong regulator to monitor this new level playing field is critical for protecting consumers and restoring market confidence. I won’t pretend to be a disinterested party, but I know that the OTS has the most extensive expertise of any regulatory agency in the oversight and supervision of mortgage banking operations and I believe the OTS is in the best position to assume federal authority to regulate the

currently unregulated players in mortgage banking.

Role In IndyMac Bank controversy

The failure of IndyMac Bank on July 11, 2008, was the fourth largest bank failure in United States history.^[11] Prior to IndyMac's failure on July 11, 2008, the bank had come to rely heavily on higher cost, less stable, brokered deposits, as well as secured borrowings, to fund its operations. The bank had focused on stated income and other aggressively underwritten loans in areas with rapidly escalating home prices, particularly in California and Florida.^[12]

On June 26, 2008, Senator Charles E. Schumer publicly released letters he had previously sent to Reich's agency and others, suggesting that IndyMac bank was in danger of failing and that the danger was being ignored. In the weeks that followed, Director Reich blamed Schumer's release of the letters for instigating IndyMac's collapse.^[13]

On July 21, 2008, Reich described "interference with the regulatory process by reporting and disseminating speculation about the condition of financial institutions, thereby undermining public confidence in those institutions and causing serious harm" as a contributor to the failure of IndyMac as well as Fannie Mae, Freddie Mac and Lehman Brothers.^[14]

On December 22, 2008, Reich removed his agency's western director, Darrel W. Dochow for allowing IndyMac to backdate a capital infusion of $18 million from its parent company so that the bank would appear "well capitalized" in its 10-Q for the period ending March 31, 2008. According to a source with knowledge of the incident, at another point Mr. Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets, overruling the advice of others in the agency.^[15] Mr. Dochow played a central role in the savings-and-loan scandal of the 1980s, overriding a recommendation by federal bank examiners in San Francisco to seize Lincoln Savings, the giant savings and loan owned by Charles Keating. Mr. Reich called the backdating irregularity “a relatively small factor” in the collapse of IndyMac.^[16]

On February 12, 2009, Reich resigned, announcing he would step down February 27.^[1]

On February 26, 2009, the Treasury Department's inspector general released a report citing laxity at the OTS under Reich for adding significantly to the $10.7 billion in FDIC losses from the IndyMac failure, as well as the estimated $270 million in losses suffered by uninsured depositors. The report concluded that, under the law, OTS should have taken Prompt Corrective Action against IndyMac in May, 2008.^[17]

Commenting on the report, Inspector General Eric Thorson dismissed Reich's claim that Senator Schumer's letters caused the failure. Marla Freedman, the assistant inspector general for audit, detailed a pattern of excess risk-taking and abuse of the lending process at IndyMac and the OTS's consistent and concurrent failure to act. Mr. Reich said in a letter to the inspector general that he agreed with the agency's filings.^[18]

On February 27, 2009, Reich stepped down amidst the continuing audit of backdating at IndyMac and four other institutions.^[19] Scott Polakoff, OTS senior deputy director and chief operating officer, hired under Mr. Reich, became acting director on his departure.

On March 26, 2009, Polakoff was removed and placed on leave by United States Secretary of the Treasury Timothy Geithner, amidst an announced further review and investigation of the backdating scandal by the U.S. Treasury's Inspector General.^[20]

Role in AIG Controversy

In a May 2006 congressional hearing, Reich addressed the issue of OTS's regulating of international financial holding companies through its special office of Complex and International Organizations. Reich said he was working to ensure that the financial companies under his watch wouldn't be burdened by added "regulatory scrutiny" in Europe. Among other things, he said the OTS designation meant U.S. companies operating in Europe could avoid testing "the qualifications of key personnel" and requirements to keep more cash and assets in reserve to cushion against losses.

In a March 2007 report on financial regulation, the Government Accountability Office looked at the OTS and found "a disparity between the size of the agency and the diverse firms it oversees." The report noted a lack of specialized skills at the OTS, which had just one insurance specialist to oversee several insurers such as AIG.^[21]

In March 2008, Acting Director Polakoff admitted told a U.S. Senate panel that the Office of Thrift Supervision “fell short” in its oversight of American International Group Inc. Polakoff admitted that the regulator “did not sufficiently assess the susceptibility of highly illiquid, complex instruments,” to ratings downgrades and "should have directed the company to stop originating credit-default swap products before December 2005.”^[22] In response to a Senator Mel Martinez's remark that OTS might be "the regulator that we've been looking for", Polakoff acknowledged that OTS was "the one".^[23]

Civic activities

Reich's community service includes serving as Chairman of the Board of Trustees of a public hospital facility in Ft. Myers, Florida, and Chairman of the Board of Directors of the Sarasota Family YMCA. He has also served as a Board member for a number of civic organizations, and was active for many years in youth baseball programs in Sarasota, FL. In Washington, DC, Reich has served as an elder and trustee of the National Presbyterian Church, and chairman of the National Presbyterian Church Fund for Charitable Giving. In March 2009, he became a member of the Board of Directors of the Senior Housing Crime Prevention Foundation.