The kind of Democrat I endorse works to support the New Deal.

[Octafish]

21. Ten Lessons We Must Learn from Charles Keating (Just-Us v Justice)

By William K. Black

I knew Charles Keating, the head of Lincoln Savings, in my capacity as a financial regulator and as the subject of his wrath. His fraud schemes and the manner in which they targeted our system’s vulnerabilities in an era before Citizens United made the corruption of politicians by fraudulent CEOs child’s play remain the play book for the world’s most destructive financial frauds. Our failure to learn the ten lessons has caused immense suffering. Keating’s life, and the great harm he caused, will not have been in vain if we step back and use the occasion of his death to reflect on the changes we need to make.

I want to make clear up front that I have personal reasons to feel upset about Keating. He sued me in my individual capacity for $400 million, he hired private investigators to investigate me on at least two occasions that became public, he tried very hard, in league with Speaker of the House James Wright, Jr. to get me fired, he successfully extorted the pusillanimous heads of our regulatory agency to take the unprecedented, and disastrous step of removing the Federal Home Loan Bank of San Francisco’s (FHLBSF) jurisdiction over Lincoln Savings, and he secretly issued this infamous written command to his chief political fixer.

“HIGHEST PRIORITY – GET BLACK

… KILL HIM DEAD

Yes, that is how the original reads – Keating was an “all caps” plus “underlining” kind of guy.

Keating was also a lawyer, so one of the typical, hilarious minor steps he took was withholding the memorandum that I just quoted from production in response to discovery commands on the grounds that it was an “attorney-client” communication. (His chief political fixer/leg breaker was a lawyer.)

Keating always claimed we (the FHLBSF) had a “vendetta” against him and that I was a leader of this vendetta. He thought our lives were focused on destroying him. The reality is that we were overwhelmed countering the epidemic of accounting control fraud that was driving the second, far more destructive, phase of the S&L debacle. Keating was one of roughly 300 fraudulent S&L heads from our perspective. Collectively, this very non-Spartan “300” and their political allies were vastly more powerful than we were. We also never dwelt on the personalities and did not classify fraudulent CEOs as “evil.” Keating was obsessed with us in ways we were never obsessed with him. So, let me begin by offering my condolences to his family and friends.

Overview

[font color="green"]The Savings and Loan debacle was the test bed for the epidemics of accounting control fraud that drove our subsequent financial crises. [/font color] The debacle was the only one that was “successfully” contained before it could cause a financial crisis. The debacle was widely described at the time as the “worst financial scandal is U.S. history,” so the phrase “successfully contained” is obviously one that could spark disbelief. The critical modifier is “before it could cause a financial crisis.” The S&L debacle did not lead to even a mild national recession. It did hyper-inflate regional real estate bubbles that pushed parts of the Southwest region into a serious economic decline. The Enron-era frauds substantially contributed (in conjunction with the related collapse of the dot com bubble) to a $7 trillion fall in market capitalization and the fraud epidemics hyper-inflated the largest bubble in history and drove a Great Recession that is projected to cost over $20 trillion in lost production. The S&L debacle, therefore, allows us to understand not only went wrong, but also how to prevent things from going wrong.

Keating was the poster child of the S&L debacle. One of the telling aspects of the current crisis is that it has no poster child. The elite CEOs that led the frauds that drove the crisis became wealthy through frauds that they led with total impunity because we forgot the lessons we learned at such a high price during the debacle.

CONTINUED...

http://neweconomicperspectives.org/2014/04/ten-lessons-must-learn-charles-keating.html