In the 1980s, poor management and outright fraud required a $300 billion bailout by Washington of US

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Question:

In the 1980s, poor management and outright fraud required a $300 billion bailout by Washington of US savings and loan associations. The biggest failure was a $2.5 billion bailout of California-based Lincoln Savings, led by Charles Keating. Lincoln Savings & Loan became the poster child of a much larger culture of financial abuse in the "go-go" period of the 1980s.
Keating bought Lincoln Savings & Loan for $51 million in 1984 and almost immediately the bank began to make aggressive investing bets with depositors' money, including stocks, junk bonds and real estate ventures. By 1987, Lincoln's assets had gone from $1 billion to $3.9 billion; however, an audit revealed that the bank had $135 million of unreported losses and was more than $600 million above a federally mandated cap on risky savings and loan investments.

In 1987, Keating persuaded five US senators -to whose campaigns he had contributed a total of $1.3 million-to intervene on his behalf when federal bank regulators first began investigating his financial dealings. When asked if this bought him influence, Keating responded, "I certainly hope so." By doing this, he was able to get the FBI, the SEC and other regulatory agencies to back off their investigations into Lincoln. The group of senators later became known collectively as the "Keating Five."

While Lincoln's reported assets grew to as large as $5.4 billion, investors subsequently discovered that the company continued to have non-reported losses. Lincoln filed for bankruptcy in 1989, and many of its 23,000 customers lost their entire life savings. US tax-payers were forced to pay $3.4 billion to help cover the bank's losses.

The government case against Keating involved allegations that he recklessly invested Lincoln savings funds in speculative ventures, including undeveloped real estate and junk bonds, many of which went sour.

They also looked at accusations that Keating siphoned off as much as $95 million from Lincoln into another company, from which he and his family then took some $34 million in salaries, bonuses and stock sales. When called before the House Banking Committee, Keating refused to answer any questions.
On December 4, 1991, Keating was convicted in California on 73 counts of wire and bankruptcy fraud and sentenced him to 12 years of prison. After serving 50 months, Keating's conviction was overturned on a technicality. 15 He died in March 2014.

Questions:
1. Considering Keatings answer to the reporter's question, do you believe contacting the senators was ethical? If you were his advisor, would you have suggested that he testify to the House Banking Committee? Why would you recommend this action?
2. Given these circumstances, do you feel that Keatings sentence was appropriate? Why do you feel this way?
3. Lincoln Savings & Loan was a prime example of financial abuse during the 1980s. Why do you think they got away with this for so long? Do you think it can be done again today?