Charles H. Keating Jr. in court in Los Angeles in 1992. Convicted of fraud, racketeering and conspiracy in state and federal trials, Mr. Keating went to prison for four and a half years.
Charles Keating, who died this week, is best-known as the poster boy for the savings and loan crisis of the 1980s. More than 1,000 banks failed, and taxpayers spent a quarter-billion dollars bailing them out.
Here are a few of his more colorful legacies:
1. Keating gave birth to John McCain as-we-know-him. By making McCain a figure of shame.
Keating's status as the king of the S&L swindlers rests on his sponsorship of the "Keating Five": a group of five U.S. Senators whose campaigns he supported financially-- and who in turn attempted to dissuade regulators from investigating Keating's shenanigans. The sole Republican in the group was John McCain, then a relatively new U.S. Senator. McCain later called the episode "my asterisk" -- and became better-known as a bi-partisan crusader for campaign-finance reform.
2. Also on Keating's payroll in the 1980s: Alan Greenspan.
As a private economist, Alan Greenspan took on a consulting job for Keating in 1984. His job: Drafting a report to regulators, arguing that Keating's bank, Lincoln Savings and Loan, be exempted from certain rules because it was well-run.
3. He was good for a shameless quote.
From the New York Times obituary: "Mr. Keating, a 6-foot-5-inch beanpole who walked with a swagger, never minced words about buying political influence. Asked once whether his payments to politicians had worked, he told reporters, 'I want to say in the most forceful way I can: I certainly hope so.'”
4. He did like to peddle shame.
In the late 1950s and early 1960s, Keating was a huge anti-pornography crusader. He sponsored a hilarious infomercial The Atlantic called “The Reefer Madness of porn.”
5. We can thank him, in part, for financial tools that later blew up in 2008.
Roy Smith teaches finance at NYU. And he spent much of the 1980s at Goldman Sachs. "You have to remember that the S&L crisis actually spawned two of the financial industry's most lucrative product streams," he says. "One was the securitization of mortgages into mortgage-backed securities. Hello! Those things that blew up in 2008..."
They were created for sale to savings and loans. "The other was the derivatives business."
Smith says it took more deregulation, time, and financial creativity for both products to cause problems.Marketplace for Wednesday April 2, 2014by Dan WeissmannPodcast Title: Keating's legacy, from John McCain to a camp classicStory Type: News StorySyndication: SlackerSoundcloudStitcherSwellPMPApp Respond: No
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Goldman Sachs Group is reportedly trying to sell one of its stock floor trading businesses (a firm called Spear, Leeds & Kellogg). Goldman paid $6.5 billion dollars in stock and cash for it 14 years ago, but may sell it for a mere $30 million – or less.
When Goldman first purchased Spear, Leeds & Kellogg, it was acquiring what’s known as a “market maker” and a “specialist”. You can think of specialists as the auctioneers and market supervisors for a certain type of stock. Much like the person who runs the butcher section of the bazaar that is the stock market, it’s the place on the trading floor you go to buy and sell a certain type of stocks.
Specialists would be the auctioneers of certain stocks, they would help bring interested buyers and sellers together, and they could put in electronic instructions for orders (don’t buy or sell X stock until it hits Y price).
Goldman Sachs announced that with its purchase of such a specialist firm, it was now “at the forefront of advanced technology.”
Unfortunately for them, that was not the case.
What happened? Computers happened.
“The way we visualize the stock markets has completely changed,” explains Eugene White, professor of economics at Rutgers University. No longer are swarms of brokers scurrying across the trading floor to a specialist’s post. “That’s gone right now pretty much.”
Many orders are now akin to sizeable parking lot deals, done not in one central clearing house for a stock category but rather on any number of servers, says White. Around half of all stock trades are done this way -- electronically through high speed trading. Computers implement orders and react to prices on their own, and on different electronic exchanges. And the volumes are enormous – often larger than any specialist could reasonably accommodate.
“What’s happened is that there are huge orders now that come in and which are negotiated directly between different parties,” says White.
These deals are done millions of times a second and automatically. In fact, computers have gotten so good at doing this they’ve driven down profits for all middle men – computers and humans alike.
“The spreads have narrowed enormously,” says White, referring to the profits that specialists would make as middle men. It’s a long term trend dating back 50 years, but the rise of high speed trading has accelerated it apace.
It’s one other reason why a company that Goldman Sachs Group bought for $6.5 billion may sell for just a fraction of that - reportedly just $30 million -- “not even really the price of a trophy apartment” for a Goldman executive in New York, says White.