Lincoln Savings and Loan Association
Encyclopedia
The Lincoln Savings and Loan Association of Irvine, California
was the financial institution at the heart of the Keating Five
scandal during the 1980s Savings and Loan crisis
.
Up through the early 1980s, Lincoln was a conservatively-run enterprise, with almost half its assets in home loans
and only a quarter of its assets considered at risk. It had slow growth at best, and had shown a loss for several years until it made a profit of a few million dollars in 1983.
Lincoln then became headed by
Charles Keating
, who as chairman of a home construction company, American Continental Corporation
, purchased Lincoln in February 1984 for $51 million. Keating fired the existing management. Over the next four years, Lincoln's assets increased from $1.1 billion to $5.5 billion.
Such savings and loan association
s had been deregulated
in the early 1980s, allowing them to make highly risky investments with their depositors' money, a change of which Keating took advantage.
Alan Greenspan
sent a letter in February 1985 to officials of the Federal Home Loan Bank of San Francisco supporting an application for an exemption for Lincoln to a bank board rule forbidding substantial amounts of some investments.
When American Continental Corporation, the parent of Lincoln Savings, went bankrupt in 1989, more than 21,000 mostly elderly investors lost their life savings. This total came to about $285 million, largely because such investors held securities backed by the parent company rather than deposits in the federally insured institution, a distinction apparently lost on many if not most of them until it was too late. The federal government covered almost $3 billion of Lincoln's losses when it seized the institution. Many creditors were made whole, and the government then attempted to liquidate the seized assets through its Resolution Trust Corporation
, often at pennies on the dollar compared to what the property had allegedly been worth and the valuation at which loans against it had been made. Charles Keating was sent to prison for fraud.
Irvine, California
Irvine is a suburban incorporated city in Orange County, California, United States. It is a planned city, mainly developed by the Irvine Company since the 1960s. Formally incorporated on December 28, 1971, the city has a population of 212,375 as of the 2010 census. However, the California...
was the financial institution at the heart of the Keating Five
Keating Five
The Keating Five were five United States Senators accused of corruption in 1989, igniting a major political scandal as part of the larger Savings and Loan crisis of the late 1980s and early 1990s. The five senators – Alan Cranston , Dennis DeConcini, John Glenn , John McCain , and Donald W. Riegle,...
scandal during the 1980s Savings and Loan crisis
Savings and Loan crisis
The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...
.
Up through the early 1980s, Lincoln was a conservatively-run enterprise, with almost half its assets in home loans
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
and only a quarter of its assets considered at risk. It had slow growth at best, and had shown a loss for several years until it made a profit of a few million dollars in 1983.
Lincoln then became headed by
Charles Keating
Charles Keating
Charles Humphrey Keating Jr. is an American athlete, lawyer, real estate developer, banker, and financier, most known for his role in the savings and loan scandal of the late 1980s....
, who as chairman of a home construction company, American Continental Corporation
American Continental Corporation
American Continental Corporation was a Phoenix, Arizona-based real estate company of the 1970s and 1980s.It was created in 1978 as a spin-off of American Financial Group, meant to do residential home construction...
, purchased Lincoln in February 1984 for $51 million. Keating fired the existing management. Over the next four years, Lincoln's assets increased from $1.1 billion to $5.5 billion.
Such savings and loan association
Savings and loan association
A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
s had been deregulated
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
in the early 1980s, allowing them to make highly risky investments with their depositors' money, a change of which Keating took advantage.
Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
sent a letter in February 1985 to officials of the Federal Home Loan Bank of San Francisco supporting an application for an exemption for Lincoln to a bank board rule forbidding substantial amounts of some investments.
When American Continental Corporation, the parent of Lincoln Savings, went bankrupt in 1989, more than 21,000 mostly elderly investors lost their life savings. This total came to about $285 million, largely because such investors held securities backed by the parent company rather than deposits in the federally insured institution, a distinction apparently lost on many if not most of them until it was too late. The federal government covered almost $3 billion of Lincoln's losses when it seized the institution. Many creditors were made whole, and the government then attempted to liquidate the seized assets through its Resolution Trust Corporation
Resolution Trust Corporation
The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...
, often at pennies on the dollar compared to what the property had allegedly been worth and the valuation at which loans against it had been made. Charles Keating was sent to prison for fraud.