CAHOKIA, ILL. -- A search for the ultimate victim of the national savings and loan disaster might stop in this blue-collar town on the east bank of the Mississippi across the river from St. Louis. Mabel Dickson lives in Cahokia, and she tells a story of almost unbearable sadness within a larger and more instructive drama -- the long rise and sudden fall of Germania Federal Savings.

Dickson is a 64-year-old widow suffering from lymph node cancer who has no health insurance. In 1987 and 1988, she invested her entire life savings -- $229,000 -- in Germania bank notes. She thought her money was safe, only to learn that the subordinated notes -- unsecured and the last to be paid off among creditors -- might be worthless now that the failing institution has been seized by federal regulators.

"This is awful," Dickson said one recent morning, teardrops sliding down her cheeks. "After all I went through with cancer, this is the next thing to death again. I can't sleep. I can't eat. I'm so nervous all the time. Germania has been my bank forever. They assured me my money was safe. I trusted them."

Whether Dickson and 799 other investors were deceived by Germania into buying $10 million of unsecured notes -- "schnotes" was the user-friendly term for them -- is now at issue in a lawsuit in which the plaintiffs contend that they were misled about the safety of the notes. Germania officials deny any misrepresentation. That case and other actions taken by Germania in the years before its demise are being investigated by the FBI, the Illinois securities department, a local state's attorney and the federal prosecutor.

Similar investigations elsewhere have led to indictments. Charles H. Keating Jr. of Lincoln Savings and Loan Association in California, a symbol of his industry's high-flying era, was jailed Tuesday on charges that his thrift violated state securities laws in the sale of $250 million in uninsured bonds. In June, top officials of Midwest Federal Savings and Loan in Minneapolis were indicted for allegedly violating federal regulations in selling $25 million in unsecured notes.

When a catastrophic event such as the savings and loan scandal occurs, the overwhelming human urge is to render it in black and white. At first glance, the Germania saga has all the elements of a good vs. evil melodrama, with Mabel Dickson in a featured role. But life is rarely that simple, and every case has its own shades and nuances.

Were Germania's managers the bad guys here, and if so, which managers? The old-timers who had been running the Alton, Ill.-based thrift for generations, or the St. Louis home builder and his securities experts who took control in 1986 and devised the "schnotes" offering? Or should the blame fall on the modest-salaried tellers and bank assistants who sold the notes and were not properly licensed for such transactions?

Is it possible that Germania, too, was a victim? Initially, federal regulators encouraged the sale of such notes as a way for thrifts to improve their capital base; then Congress passed the 1989 S&L cleanup bill and changed the rules, saying that such notes cannot be counted as part of an institution's capital reserve.

A Century-Old Relationship

Those are the central questions in the Germania story, played out in a classic Middle American context: the working-class towns from Alton down to Cahokia where shopkeepers and workers in the steel, chemical and glass plants had a century-old relationship with the bank founded in 1890 by the town's leading German-American burghers and known simply as Germania.

"Germania is synonymous with bank around here," said Rod Pitts, an Alton lawyer who represents Dickson and others. "It was the bank. My grandfather was a big believer in savings, and he used to tell me: 'Go down to Germania.' He never said bank."

When Congress and federal officials deregulated the thrift industry between 1980 and 1982, Germania followed the lead of hundreds of other S&Ls around thecountry and shifted its attention from long-term home loans to commercial loans, direct investments and high-yielding certificates of deposit. Germania executives, some of whom had been there since the end of World War II, had little experience in these newfangled financial concepts. Nonetheless, they "decided to play with the big boys," as one former officer put it.

Many of the thrift's largest commercial loans were "participation loans," in which Germania bought into larger loan packages organized by other S&Ls. But by 1985, when the real estate market had collapsed in Texas and Colorado, where most of Germania's participation loans were centered, the thrift found itself struggling to stay in the black.

Home Builder Mason Takes Over

Enter Joseph L. Mason, the largest home builder in St. Louis. Mason had dealt with Germania enough over the years to conclude that it was a well-run institution. When the thrift changed its bylaws to allow an individual to own more than 10 percent of the stock, Mason bought 26 percent, a controlling interest.

Although Mason had served on the regional Federal Home Loan Bank of Des Moines for four years at that point, he said in a recent interview that he did not know enough about S&L accounting procedures to realize that he was getting into a bad deal.

"It took me a few months to see how they had camouflaged the real value of the loan portfolio," Mason said. "You could pull out a loan file and there would be nothing in it." About $30 million of Germania's loan portfolio, or 16.5 percent, turned out to be in default.

By 1986 Mason and his allies had taken full control of Germania's board and executive staff. They moved the central office from Alton to downtown St. Louis, where top managers were chauffeured to work each morning in a Cadillac sedan, a luxury that Mason said was necessary because "we all spent every minute of every day on one thing -- working to get out of the financial hole."

They began "Project 90" -- a plan to have Germania back to good health by 1990, in time for Germania's 100th anniversary. They adopted a new slogan: "One Less Worry in Your Life."

Federal records show that Germania was striving to present a more accurate picture of its financial health, writing down real estate and selling it off whenever possible. But its capital reserves, which by law needed to be at or above 3 percent of its assets, were dwindling.

The decision to sell the subordinated notes was a key part of Germania's effort to replenish its capital reserve. Other S&Ls around the country -- including Keating's Lincoln Savings and Loan -- were doing the same.

Germania's plan was submitted to federal regulators, who amended the proposal before sending it back. The sales began in 1987.

By then Mabel Dickson was undergoing chemotherapy treatment for her cancer and paying about $600 a month in medical bills. She had recently retired after 30 years as proprietor of Mabel's Cafeteria, an eatery on North Broadway in St. Louis known for serving the best homemade doughnuts and freshest coffee in the city. Fourth District police officers and factory hands from the nearby plants lined up 20 at a time for fast and friendly service.

Mabel's Cafeteria had been successful: at her retirement, Dickson had a life savings of $229,000. Most of it was in certificates of deposit at Germania earning 6 percent interest.

One day in the fall of 1987 a salesman from Germania called, urging her to switch her money from the CDs to the subordinated notes, which he said the thrift was selling only to its "preferred customers." The notes paid 11 percent interest -- which Dickson calculated was just enough additional income to cover her medical bills.

"I thought, after all I'd gone through, that this was a gift from heaven," Dickson said. "I kept asking him if the money was safe, and he said it was not protected by federal insurance but it was protected by the bank. He kept saying how Germania had been around for 100 years and had 13 branches. I kept asking for reassurance and he kept saying it was safe."

On Nov. 10, 1987, Dickson bought her first Germania note for $15,000. As her CDs matured over the following year, she switched all her money to the notes. The salesman, Dickson said, "seemed to know exactly when to call -- just when another CD was coming due."

Most Investors Elderly, on Fixed Incomes

Dickson turned out to be the largest investor among 800 Illinois and Missouri residents, most of them elderly and on fixed incomes, who were solicited through letters, newspaper ads and brochures in Germania's lobbies.

Some investors, such as steelworker Ralph Asbury of Moro, Ill., say they were told repeatedly that the notes were federally insured.

Others, such as Marie Zarlingo of Cahokia, say they knew the notes were not federally insured but that the salespeople stressed that Germania backed the notes and that it was in excellent financial condition. Zarlingo bought her $20,000 note from a saleswoman who had been a teller at the Cahokia branch and whose husband worked with her husband at Continental Can Co.

That saleswoman was not registered to sell notes with the Illinois secretary of state's security department, according to state records. In total, 34 of Germania's brokers were unlicensed. Lawyers for Germania said they were still studying that issue and could not say why the salespeople had failed to register.

The investors contend they were deceived in several other ways. Marie Zarlingo, for instance, said Germania enticed her by saying they would waive the fees for shifting money from a CD to the note and by saying that the thrift was so sound that $5.7 million in notes had been purchased by Laclede Gas Co. of St. Louis.

Zarlingo said she never received the required "offering circular" that detailed the subordinated nature of the note, and that despite a letter from the thrift's president saying that she would be kept informed of future financial developments, she never heard from them again, "until it was too late."

A central charge in the criminal case against Midwest Federal Savings officials in Minneapolis was that they misled investors by not informing them of the thrift's precarious financial situation. Mason, Germania's chairman, was asked whether the salespeople deceived Dickson, Zarlingo and the other investors by constantly assuring them that Germania was sound.

"No," Mason said. "We were sound at the time."

Mason Tries to Regain Control

Mason and his lawyers have filed suit in Washington in an attempt to regain control of Germania from the federal conservators. They argue that the government, by changing the rules so that the subordinated notes could no longer count toward Germania's capital reserves, effectively forced the struggling thrift into insolvency.

"It was a nightmare," Mason said. "The regulators were using godlike powers to try to cover up all the mistakes they had made since 1980. They kept changing the rules based on politics, not financial reality."

Federal regulators offer a different view, saying that the use of subordinated notes had become a device for S&Ls to hide their true financial instability.

Aside from the subordinated notes offering, they said, Germania was in deep trouble -- losing $12.9 million in 1989 and $6 million in the first quarter of 1990.

On the night of June 22, Marie and Ernie Zarlingo were resting on their living room couch as the nightly news came on. Marie was half watching it. Ernie was wearing radio headphones and listening to a broadcast of the St. Louis Cardinals baseball game.

The TV anchor announced that Germania Federal Savings, the 100-year-old Alton-based institution, had been seized by regulators, who had rejected the thrift's recapitalization plan based on selling one of its branches.

"That's it," Marie Zarlingo said. "It's going down the drain. Our $20,000 is gone."

"If they were in trouble," responded Ernie Zarlingo, "they sure kept things quiet."

Mabel Dickson got a call the following morning from her son, who told her to buy the Sunday paper to read about Germania's demise.

She cried all the way home, thinking about how reassuring the salesman had been all those times, how he kept saying that her money was safe, how she had worked from 4 in the morning to 6 at night almost every day for 30 years at her cafeteria, a good German cook making doughnuts and chicken and dumplings, placing her money in the old German bank.

And now it might be gone. Federal regulators in Chicago say the investors, as the last creditors in line, may never get their money back.

"I used to think," she said, "that if you can't trust a bank, who can you trust?"