The grim picture of a thousand or more angry depositors demonstrating in the rain in Annapolis last weekend connotes more than frustration over their deposits being frozen in savings and loan associations. The pictures are, in a sense, images of a crisis in management.
Technically, the crisis among Maryland savings and loans is over. Incompetence and mismanagement, which brought down the shaky private insurance system for Maryland S&Ls, have been exposed. Protests by depositors notwithstanding, confidence in all but a few state-insured S&Ls has been restored. There are no lines of depositors seeking to withdraw their money from S&Ls.
Legal action being taken by state and federal agencies is expected to result in indictments of some former S&L officials who have been accused of wrongdoing. As a result, some S&L executives who might have been tempted to take the risky route of the industry's high fliers are more likely to play it safe now.
Maryland remains in the grip of a crisis, however. It is no longer an S&L crisis, but a crisis in management by government. The images created by government's management of the problem are sure to leave their mark indelibly on Maryland's business climate.
There is concern in Annapolis that the state could lose its coveted AAA bond rating if it uses its bonding authority to help wipe out the state's liability as insurer of S&L deposits. But the state could retain its bond rating and still lose its credibility among investors.
The business climate in Maryland hardly is enhanced by the state's handling of the S&L crisis. The plodding, indecisive approach to stabilizing the savings and loan industry not only has shaken public confidence, but it raises serious questions about the state's ability to manage complex financial matters affecting the private sector.
Maryland Gov. Harry Hughes was quoted over the weekend as saying he has to continue what he is doing, "which is to solve the problem in a deliberate fashion."
The governor is mired in the S&L quagmire because he chose from the beginning to solve the problem in a deliberate fashion. That deliberate fashion is penalizing depositors, many of whom are owners of small businesses.
If the State of Maryland were a business grappling with the S&L crisis, chances are that by now it would have been forced to file for bankruptcy or defend against a battery of lawsuits, or both.
Ironically, it was a precipitous, rather than a deliberate action, that resulted in the state's decision to insure all deposits that had been covered by the defunct private-insurance system. It is obvious now that neither the governor nor his advisers knew what they were getting into. Once the state took on that responsibility, it was obligated as an insurer to pay off the insured. By failing to do that, the state prolonged the crisis.
The latest soundings coming out of Annapolis suggest that the crisis will be prolonged even further. An administration official was quoted recently as saying that First Maryland Savings and Loan of Silver Spring could be forced into conservatorship by Thursday, when a ban on withdrawals at the association expires. Conservatorship is likely to be followed by receivership, a move that would set the stage for the sale of First Maryland to an out-of-state bank.
There seems to be a mindset in Annapolis that peddling troubled S&Ls to out-of-state banks is the only way to relieve the state of its liability. The policies of the Federal Savings and Loan Insurance Corp. suggest there are alternatives to Maryland's solution, which already has created windfalls -- at the expense of taxpayers -- for stockholders at two S&Ls that recently were sold to Chase Manhattan Corp.
Although First Maryland has been unable to obtain federal insurance, the state has not provided any evidence to the public that the S&L is about to collapse under the weight of criminal wrongdoing. To be sure, First Maryland, like other large state-insured S&Ls, has until the end of the year to obtain federal insurance or it must seek a merger or liquidate.
If the situation at First Maryland demands more immediate and drastic action, then lengthy negotiations with an out-of-state bank won't relieve the state of the problem any time soon.
In the meantime, if it is clear that First Maryland is unable to satisfy the FSLIC's standard for net worth, then the state ought to borrow a page from the FSLIC policy book: merge First Maryland into a healthier state-chartered S&L and agree to give that S&L capital assistance to help close the net-worth gap. The same strategy ought to be considered in the case of Community Federal Savings and Loan.
Meanwhile, neither depositors nor the State of Maryland can afford the luxury of deliberate action. If liquidating Old Court, for example, and paying off depositors results in a big hit to the insurance fund, then so be it. Taxpayers will wind up having to pay for the damage anyhow. The governor already has announced plans to put $50 million in next year's budget to cover S&L losses and another $50 million may be needed in the next two fiscal years.