LINCOLN SAVINGS AND LOAN

This paper summarizes, analyzes and assesses the evolution, consequences and implications of the financial collapse of Lincoln Savings and Loan Association of Irvine, California (Lincoln), including the machinations and ultimate fate of its principal owner, Charles H. Keating, Jr. (Keating). The first part of this essay deals with the way in which the Lincoln collapse developed and how it was accomplished. The second and third parts focus on the regulatory and political environment in which that collapse occurred.

The financial failure of Lincoln was the product of mismanagement and fraud practiced by Keating and his cronies on a colossal scale. Regulatory and political failures contributed to that debacle and aggravated its consequences. When they are viewed in the context of the overall breakdown of a significant portion of the nation's savings and loan (S and L) industry, those failures amounted to what Rep. James Leach, a member of the House Banking Committee termed "the single greatest regulatory lapse of the century" (Waldman, 1990, p. 20). At their core was a poorly planned and administered scheme for the deregulation of the thrift industry. Steps have since been taken to prevent a reoccurrence of cases like Lincoln; nevertheless, it stands as a reminder that the deregulation of financial markets and institutions in the United States cannot be pursued in such a pell mell fashion without causing enormous adv

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" (Martz, 1990, p. 22). In dismissing a suit Keating later brought against the federal government which alleged that federal regulators were the cause of Lincoln's financial woes, Federal Judge Stanley Sporkin condemned Keating for his "skullduggery" (1990, p. 9). This took many forms. Keating looted Lincoln with a certain amount of panache. It was estimated, for example, that Keating and his associates withdrew $34 million in salaries and other compensation. Lincoln paid for a number of private jets, a $44 million home of Keating in Florida and another in the Bahamas. Approximately $500,000 was spent on company parties between 1983 and 1989. He also lavished money on charities, $2 million to Sister Teresa (Anderson, 1992, p. B 23). Approximately $21M was withdrawn in this fashion after Federal Home Loan Bank Board (FHLBB) examiners had determined that Lincoln was a "ticking time bomb" and was headed for receivership (Carlson, 1989, p. 29). Regulatory Failures. The first line of defense was the state chartering process. State supervision of thrifts, especially in sun belt states, was notoriously lax, even before deregulation. The state agencies involved were led by appointees from the S & L industry, some of whom accepted larg
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Approximate Word count = 2827
Approximate Pages = 11 (250 words per page)

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