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View Diary: Open Source Research Project: Alan Greenspan (284 comments)

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  •  Support for Keating (none)
    I was wrong about the letters to regulators. Greenspan was Fed Chairman by the time the regulators began intense audits.  
    Greenspan was basically a paid spokesman who lobbied the government for an exemption to the limit on direct equity investments (Lincoln's portfolio of direct investments included numerous property scams designed to show phony profits for a company that was in reality failing miserably; the more scams you're allowed the more you can pump up paper profits). Keating didn't wait for approval. Lincoln was already far above the 10% limit, as Greenspan would have known if he had made any effort to look at the books (in an amazing display of chutzpah, Keating at one point in 1987 offered to reduce his exposure to 15% if the regulators would allow an exemption for that amount). Of course Greenspan probably didn't make much effort to follow up because he was an extremely cheap financial whore. According to The Greatest-Ever Bank Robbery by Martin Mayer, Greenspan only made $40000 for his consulting work. He was clearly paid to lobby, write letters and nothing else.
    There is a letter included in the book from Greenspan to the Principal Supervisory Agent of the Federal Home Loan Bank in San Francisco. He made these claims on February 13, 1985:
    "I have reviewed the application Lincoln has submitted to your offce, and it is my opinion that Lincoln clearly merits the exemption it seeks. Its application establishes the critical and dispositive facts:
    1. Lincoln's new management, and that of it's parent, American Continental Corporation, is seasoned and expert in selecting and making direct investments;
    2. the new management has a long and continuous track record of outstanding success in making sound and profitable direct investments;
    3. the new management succeeded in a relatively short period of time in reviving an association that had become badly burdened by a large portfolio of long-term, fixed-rate mortgages and unfavorably structured adjustable rate mortgages whose relatively low yields had been forcing large losses on the association and pushing it nearer the point of insolvency;
    4. the new management effectively restored the association to a vibrant and healthy state, with a strong net worth position, largely through the expert selection of sound and profitable direct investments;
    5. the new management is devoting a large proportion of its assets to the financing, servicing and construction of residential housing; and
    6. the new management has developed a series of carefully planned, highly promising, and widely diversified projects-a high percentage of which involve the development and construction of residential housing-requiring sizeable amounts of direct investments."

    All six of these statements are basically lies. Lincoln S&L was far from in need of reviving before Keating took over, though I imagine he did tell Greenspan this and Greenspan believed it without doing any checking. Interest rates soared in the late 70s and early 80s. Lincoln lost money in 1981 and 1982 (as did almost all S&Ls), and was forced to sell its busiest branch to cover these losses. It made a profit in 1983, as interest rates fell again. It was in stable financial shape.
    Keating, on the other hand, was clearly unfit to own an S&L from the start. The SEC had brought charges against him in 1979, alleging improper loans to insiders and friends by a Cincinnati bank he was connected with. Greenspan's financial judgment in this situation really sucked. He should have known better.

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