Bailout Out—And Back
Nov 19 2008
Today’s financial meltdown recalls the savings-and-loan scoundrels who took our money but didn’t all get away with it.
The End
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
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The New Order
The Wall Street crash did more than wipe out money. It also reordered the power in the finance business. A look at who’s rising—and who’s flaming out.
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With Wall Street foundering, banks failing, and the public learning that it’s on the hook for hundreds of billions in bailout money, it’s worth revisiting the rogues of a simpler era: the 1980s and 1990s, when 1,600 savings-and-loan associations—leveraged on junk bonds and speculative real estate that depositors unwittingly paid for—collapsed. The bust cost taxpayers a then-shocking $190 billion. Here’s where several key players, both familiar and forgotten, wound up.
| Name | What Did He Do? | Where Is He Now? |
| Charles Keating, chairman, Lincoln Savings & Loan | Invested Lincoln depositors’ money in junk bonds, swiftly quintupling its assets to $5.5 billion. But the bonds defaulted, erasing the life savings of 21,000 elderly Lincoln customers. Keating served five years in prison. | Developing real estate in Phoenix. In 2006, he told the Cincinnati Enquirer: “I became a poster boy for the S&L holocaust.” |
| Neil Bush, board member, Silverado Savings & Loan | Lent more than $200 million in depositors’ money to oil-drilling partners. Neil’s father, the first President Bush, did not protect Silverado after its 1988 collapse. | After a tawdry public divorce, Bush now sits on the boards of the Points of Light Foundation and Volunteer Houston. |
| David Paul, chairman, Centrust Bank of Miami | Built Centrust into an $8 billion giant by buying junk bonds. Spent depositors’ money on cars, yachts, and artwork. The bank, seized in 1990, was bailed out for $1.7 billion. Paul was the only Centrust executive to go to prison. | Retired, with homes in Connecticut and Florida. |
| Edwin McBirney, C.E.O., Sunbelt Savings of Texas | Spent his customers’ cash on 84 Rolls-Royces. When ordered in 1993 to repay $16 million to the F.D.I.C., he tried to defraud the government. | Serving a 97-month prison sentence at the federal correctional institution in Big Spring, Texas. |
| Fernand St. Germain, U.S. representative (Rhode Island) | Co-sponsored the 1982 congressional act that deregulated the S&L industry, prompting a spree of risky real estate speculation and imprudent (and fraudulent) loans. | Retired, living in Rhode Island; was voted out of office in 1988. “I think we did a good job,” he says today. |
| John McCain, U.S. senator (Arizona) | Pressured regulators on behalf of friend Charles Keating. As one of the “Keating Five,” was censured in the Senate for “poor judgment in intervening with the regulators.” | Adjusting to life off the Straight Talk Express. |
| Alan Greenspan, economist | Was hired by Keating to persuade federal regulators to let S&Ls invest in real estate. Lincoln’s collapse cost taxpayers $3.4 billion. | At 82, the longtime Federal Reserve chairman heads Greenspan Associates in Washington. |
