At the height of his power in the Roaring Eighties, Charles Keating commanded an estimated $100 million personal fortune, controlled $1 billion in financial assets and counted a handful of U.S. Senators among his powerful buddies. Last week he stood as a wretched symbol of the past decade's financial follies. After the former owner of California's bankrupt Lincoln Savings and Loan was indicted on 42 counts of criminal fraud and was unable to raise the $5 million bail, police handcuffed and jailed him. California alleges that Keating bilked investors who bought $250 million of now virtually worthless junk bonds. The state's charges were the latest in a flood of legal actions against the disgraced businessman. Overall, taxpayers will have to pay more than $2 billion to clean up the mess left by Lincoln's collapse, one of the costliest in the nation.
Keating was the most visible villain last week in an S&L debacle that could cost Americans as much as $1 trillion, or some $30 a month for every household over the next four decades. In inflation-adjusted dollars, that is nearly twice the cost of the Vietnam War and almost four times the cost of the Korean conflict. So far, the government has seized more than 490 insolvent thrifts, or nearly one-fifth the entire industry. An additional 600 are troubled and may fail.
Even as jail doors slammed behind Keating, who remained in prison pending his arraignment next month, shock waves from the thrift crisis rippled across the U.S. The impact contributed to the budget deadlock in Washington and aggravated the slump in real estate prices in cities glutted with condominiums and office towers. In Denver federal regulators filed a $200 million lawsuit against the President's son Neil Bush and 10 other officials of the failed Silverado S&L, charging them with "gross negligence." Meanwhile, Neil Bush prepared to respond this week to previous federal charges that he abused his role as a Silverado director. In Congress, L. William Seidman, chairman of the Resolution Trust Corporation, asked for at least $100 billion for fiscal 1991 to keep the S&L bailout moving. Only a year ago, regulators had expected that $50 billion would do the job.
The bailout faces the added specter of a slumping U.S. economy. A recession could raise the already astronomical price of the bailout by pushing more thrifts into bankruptcy and making it harder for the government to find buyers for seized S&Ls and their assets. Federal Reserve Chairman Alan Greenspan warned Congress last week that the Persian Gulf crisis has "introduced new and substantial risks" to the economy. Washington's latest measures of economic activity showed just how gloomy the outlook has become, as the Consumer Price Index rose 0.8% in August, equivalent to an annual rate of 9.6%.