Twenty years ago, I was a young Globe reporter, randomly assigned to cover banking. My clip books from those days are diaries of devastation, with our stalwart and signature banking institutions collapsing one by one, all victims of a real estate meltdown that would take years to digest and repair. Sound familiar?
PLEASE FORGIVE my bouts of déjà vu as I read the coverage of the latest banking industry meltdown. We've been here before. We'll probably be here again.
Twenty years ago this month the first writings on the wall appeared, hinting that New England's banking industry was on shaky footing. Just like today's crisis, the cause then was unfettered and largely unregulated mortgage lending - big money chasing bad loans - and hubris-plagued executives who thought they had discovered an exclusive way to make their fortunes.
I was a young Globe reporter, randomly assigned to cover banking. My clip books from those days are diaries of devastation, with our stalwart and signature banking institutions collapsing one by one, all victims of a real estate meltdown that would take years to digest and repair. Sound familiar?
It started in late 1988 as area savings banks that had been flush with cash thanks to a Wall Street-coerced conversion to stockholder-owned corporations ominously began making huge write-offs for loans on condominiums whose value had plummeted. The seriousness of what lurked on those balance sheets became clear when I had to report that the sudden death of the chairman of a rising-star bank in Dorchester was a suicide, and there were whispers that the bank's stellar earnings were illusory.
The crisis spread like a California wildfire. Next, the century-old Boston Company, which was owned by Shearson Lehman and whose chairman had recently made his entrance to the company's annual meeting in a hot air balloon, admitted that its record profits had been erroneously overstated due to the way it accounted for an arcane investment instrument called Collateralized Mortgage Obligations. Sound familiar?
Next up was the giant Bank of New England, one of the chief benefactors of deregulation and whose colorful chairman habitually and cruelly demeaned his loan officers and their paltry portfolios with commands to "grow it, grow it!" BNE admitted in early 1989 that it was victimized by a Chicago con man and lost $100 million. By the end of the year, the bank's losses had topped $1 billion and its slide toward collapse was fatefully sealed.
There were lesser-known, though no less colorful, CEOs and executives that populated the banking landscape, all of whom tried to convince me and my readers they were smarter and savvier than the average banker. Like "Big Al" Holgerson, an S&L cowboy who jokingly told me during our first interview that the artwork and nearly everything else in his office was fake. I earned his undying enmity when I used the comment as a metaphor for him and his bank's finances.
There was a nerdy loan officer at a little bank in Lowell who astoundingly wound up as one of the highest-paid bankers in the United States because he duped his superiors into tying his compensation to the number and value of the mortgages he sold. He wrote thousands and made millions. The bank failed.
Eventually, they all failed or were swallowed up: Bank of New England, Bank of Boston, Boston Company, Boston Bank of Commerce, Boston Five, Shawmut, MerchantsBank, Elliot Savings, First American Bank, ComFed, Home Owner's Federal, First Service Bank, Home Federal, and on and on. I chronicled their deaths and tried to explain how we arrived at this loathsome point in the road and why we would soon have no big local banks.
Many of them, particularly Bank of New England, borrowed millions from the government during their last desperate throes (bridge loans to nowhere), passing the losses to investors and taxpayers while top executives walked away with handsome severance packages. Sound familiar?
There were blue-ribbon commissions appointed and 10-point plans presented for resurrection and a special agency created to dispose of all the abandoned assets. But there were few indictments, and the mess was largely left to time and the private sector to sort through.
Now, it's happening again, maybe on a grander scale, with bigger companies and more zeroes. But the root causes are identical: deregulation, no oversight, and a mistaken confidence that if the merry-go-round is giving you a good ride, it will never stop.
Doug Bailey, former member of the Globe staff, is president of DBMediaStrategies Inc.