Keating Five - Circumstances

Circumstances

The U.S. Savings and Loan crisis of the 1980s and early 1990s was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. taxpayer. The accompanying slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, at the time the lowest rate since World War II.

The Keating Five scandal was prompted by the activities of one particular savings and loan: Lincoln Savings and Loan Association of Irvine, California. Lincoln's chairman was Charles Keating, who ultimately served five years in prison for his corrupt mismanagement of Lincoln. In the four years after Keating's American Continental Corporation (ACC) had purchased Lincoln in 1984, Lincoln's assets had increased from $1.1 billion to $5.5 billion. Such savings and loan associations had been deregulated in the early 1980s, allowing them to make highly risky investments with their depositors' money. Keating and other savings and loan operators took advantage of this deregulation. Savings and loans established connections to many members of Congress, by supplying them with needed funds for campaigns through legal donations. Lincoln's particular investments took the form of buying land, taking equity positions in real estate development projects, and buying high-yield junk bonds.