China\'s Answer to Charles Keating

It had been a long time since I thought about Charles H. Keating Jr., who was perhaps the most notorious executive in the savings and loan crisis of a quarter-century ago.

But it looks as if he has a successor, perhaps many, in China.

There was no shortage of outrageous behavior during the thrift crisis, but Mr. Keating stood out from the crowd for having defrauded the customers of his bank, rather than just the government through the deposit insurance program.

He did that through the sale of $250 million in bonds to customers of Lincoln Savings and Loan. The bonds, which defaulted, were not insured deposits, but many customers did not understand that. The bonds were sold inside the bank branches, many of which were located in retirement communities. One bank missive exhorted the bond salesmen: “And always remember the weak, meek and ignorant are always good targets.”

In China, there has been growing concern about the fact that a lot of banks offer “wealth management” products promising high interest rates, but often without much if any disclosure about where the money is going.

The Financial Times reports Friday that analysts from Argyle Street Management, a Hong Kong hedge fund, visited banks across the country to see what was being sold to the clients.

The buyers, one analyst reported, “think everything is backed by the government. One salesman told me that as long as the Communist Party remains in power, these products are safe.”

Perhaps I am being unkind to Mr. Keating in this comparison. His customers did get documents saying they were lending the money to the American Continental Corporation, Lincoln's parent company, even if the sales representative aimed at customers who would not understand what the documents said. The Financial Times article mentions one Chinese bank offering a product that promises 12 percent interest but says nothing about where the money is going.

All of this seems to be a way for the banks to lend and lend and lend, regardless of what bank regulations say.

Mr. Keating's venture did not end well for him, or his customers, or for at least some of the politicians whose support helped him to intimidate regulators for a time. There may be more parallels yet to emerge for the Chinese Keatings, whoever they are.