Exactly eight months after Maryland's savings and loan crisis erupted, Gov. Harry Hughes broke a self-imposed silence last week to announce what amounts to a plan that will extend the S&L problem four more years for some depositors.
Declaring an end to the state's S&L crisis is "in sight," the governor unveiled a $320 million plan to free deposits that have been frozen at Old Court Savings and Loan Association since June and to finance the sale of two other state-insured thrifts. Under the long-awaited plan, however, depositors at Old Court won't have access to all of their money until December 1989.
Even if the plan had provided for an expedited distribution of frozen deposits, last week's carefully orchestrated public relations blitz would have to be considered a failure in terms of assurances that Maryland-chartered S&Ls are any safer now than they were eight months ago. The fact that Maryland has forced most of the larger state-chartered S&Ls to obtain federal deposit insurance in the wake of the crisis is no guarantee that those in charge of some thrifts are capable of running them.
To be sure, investigations are continuing into the corrupt practices that led to the biggest business scandal in the state's history. In the meantime, however, the foxes are still in charge of the chicken coop and, as long as that's the case, Maryland still has a serious problem in its S&L industry.
Alleged abuses at Baltimore's Old Court supposedly triggered the S&L crisis. An extensive investigation into the causes of the crisis, however, provided overwhelming evidence in support of the belief that the problem went far beyond Old Court. The report of Special Counsel Wilbur D. Preston Jr. shows that several Maryland S&Ls violated industry regulations and state laws by engaging in illegal practices such as insider dealing, skimming and other misuses of depositors' funds.
"The virus spread until it affected the associations that held approximately 50 percent of the $8 billion" insured by the Maryland Savings Share Insurance Corp., Preston noted in his exhaustive report from the investigation.
Incredibly, some present and former officials at Maryland S&Ls that nearly were wrecked by mismanagement and abuses stand to reap substantial financial reward from the sale of those institutions or from financial assistance from the state, allowing them to obtain federal insurance and expand. S&L executives are being rewarded immediately for their abuses or shortcomings; beleaguered depositors at Old Court are being asked to wait four years for their money.
In the wake of highly publicized abuses at Old Court, former president Jeffrey A. Levitt has been indicted. Other S&L officials were forced to step aside when their associations were placed in conservatorship. But, except for those changes, the sale of three S&Ls to Chase Manhattan Corp. and the approval of federal insurance for some thrifts, little has changed. It's doubtful that, under the heat of publicity and investigations, any S&L official still is engaging in the unlawful practices that nearly destroyed Maryland's S&L industry. But, it's business as usual, and many of the same people who were running some of Maryland's financially shaky S&Ls eight months ago are still in business.
Hughes' deposit-distribution plan, notwithstanding, the end of the S&L crisis is not "in sight," as the governor insists. Establishing a timetable, finally, for distributing deposits frozen at Old Court is merely one aspect of restoring confidence in the state's savings and loan industry. The Preston Report is unequivocal in its conclusion that the crisis was caused largely by "a total absence of regulation." S&L officials "took advantage of that absence of regulation to expropriate depositors' money for their own use."
Little more than a month before issuing his report, Preston recommended that Hughes tighten the state's regulation of savings and loans by issuing an emergency executive order. In the absence of such an order or new regulations, is it safe to assume that sound and honest management are in place at The end of the S&L crisis is not "in sight," as the governor insists. most of Maryland's state-chartered S&Ls?
The Federal Savings and Loan Insurance Corp. has a responsibility to depositors at FSLIC-insured thrifts, but Maryland retains responsibility for supervising, regulating and examining those with state charters.
The widespread abuses chronicled in the Preston Report seem serious enough to warrant at least two other immediate actions by state officials now that Hughes has unveiled his plan to return depositors' money: Pending the completion of ongoing investigations, management should be replaced at all thrifts cited by the special counsel for alleged violations. That and a strong effort to improve the regulatory climate should help put the end of the crisis in sight.