The eventual 1989 S&L crisis was not without prior warning of impending trouble. In mid May, 1985, a crisis occurred in the state of Maryland after bad press hit the streets about alleged insider improprieties at Baltimore Old Court Savings and Loan. Panic spread to other thrifts when it was thought that the state's private insurance fund might not have enough to cover losses. Depositors, reported Time Magazine (May 27, 1985):"gathered up their lawn chairs, thermos bottles and portable radios and lined up outside the banks."
"What scared everyone was that everyone else was scared of losing his or her savings," said Time further. Out of fear, depositors took back out of their thrifts $630 million in two months.
As was later discovered, from 1982 to 1985, Old court's owner, Jeffrey Levitt, had increased the assets of the thrift from $140 million to $873 million using some esoteric real estate deals and Wall Street securities trades, many of which were now souring. This was in addition to his lavish consulting fees and insider loans.
Regulators stepped in to calm the situation and reassure nervous depositors. Old Court, found to be insolvent because of the bad loans, was later (quietly) sold off to a larger New York institution, as were several other insolvent Maryland S&L's. The US is a big place however and one state's thrift problems did not immediately present themselves to other states. The general US crises occurred only when real estate values across the country crashed at the end of the decade.
Back at Old Court, Jeffrey Levitt (and his wife Karol) were found to have taken out over $2 million a year in salary, had used Old Court to buy $500,000 worth of jewelry and a good deal of artwork, to finance gambling excursions to nearby Atlanta, to buy two beach condo's, three racehorses, an apartment in Baltimore and one in New York City. On his way to prison after court proceedings that went against him, Levitt said simply; "I got carried away." (Calavita, page 62)
Follow up references:
Calavita K., Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis, University of California Press, 1997.
Another Time Bomb goes off, Stephen Koepp, Time, May 27, 1985
Copyright: Phil Anderson, 2004