Dan Walters

Dan Walters: Keating’s death recalls California’s big savings and loan debacle

Dan Walters
Dan Walters

Charles Keating, the high-flying savings and loan tycoon at the center of a financial and political scandal in the 1980s, died Monday in Phoenix.

The scandal was rooted in California’s 1982 deregulation of state-chartered savings and loans – banks then limited to home loans – freeing them to make virtually any speculative investment.

That huge, ultimately corrosive policy change is a story unto itself, having to do, as former Assembly Speaker Willie Brown later acknowledged, with his crafty scheme to advance Republican Assemblyman Pat Nolan’s career.

Brown encouraged Nolan to carry the high-profile deregulation bill and it was approved by the Legislature and then-Gov. Jerry Brown, helping Nolan to become the Assembly Republican leader.

A few years later, Willie Brown called in the chit when his speakership was threatened by five rebel Democrats and Nolan wouldn’t help them topple the speaker. The rebellion collapsed and Nolan was later ensnared in a federal undercover investigation of Capitol corruption and packed off to prison.

In 1984, after deregulation, Keating acquired Orange County-based Lincoln Savings. He contributed lavishly to campaign treasuries of Nolan and other California politicians, including then-Gov. George Deukmejian, and hired a close Deukmejian adviser as his lobbyist as he sought state permission to use Lincoln money to support his other businesses.

In Washington, Keating battled with regulators over how Lincoln was spending its federally insured deposits and enlisted five U.S. senators, including California’s Alan Cranston, to help him.

“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,” Keating said at one point. “I want to say in the most forceful way I can: I certainly hope so.”

Joining the “Keating Five” ruined Cranston’s long political career, which at one point even included presidential ambitions. He was formally reprimanded by the Senate for unethical conduct, decided not to seek re-election to a fifth Senate term in 1992 and died in 2000.

Lincoln collapsed in 1989 – the poster child for many S&L debacles. Keating’s subsequent criminal convictions were voided on appeal, although he spent 4 1/2 years in prison and pleaded guilty to federal bankruptcy fraud. After many years in the spotlight for his high-flying finances and quixotic crusades against pornography, he retired into obscurity.

Two days after he died, the U.S. Supreme Court declared that the aggregate limit on how much money wealthy persons can give to federal campaigns is unconstitutional. The ruling drew sharp criticism from Sen. John McCain, an Arizona Republican who was one of the Keating Five, but later morphed into a campaign finance reform advocate.