It took only two words: "management difficulties."
Boom.
Like a mushroom cloud over Baltimore, news of problems at Old Court Savings and Loan drove people from their homes in a stampede to withdraw their money, creating a spectacle outside thrift branches as depositors towed lawn chairs, umbrellas, coolers, novels, pizzas, backgammon sets, thermos bottles and portable radios.
"I wasn't leaving that parking lot," recalled Randallstown depositor Marc Galonoy, "until I got every penny."
The great run of May 9, 1985 -- a decade ago Tuesday -- unleashed the worst financial crisis in Maryland since the Great Depression.
And it's not quite over yet.
Maryland is still trying to unload $20 million to $30 million of Old Court's assets, including the swank Canterbury Hotel in Indianapolis, where former heavyweight boxing champion Mike Tyson raped a beauty contestant.
Such was the scope of Maryland's crisis that it extended far beyond the state line. Indeed, the calamity here should have set off an alarm long before the national S&L debacle unfolded in the late 1980s and early '90s.
If only someone had been listening.
"The federal crisis was the Maryland crisis with more zeros at the end," said Patrick M. McCracken of the Maryland Deposit Insurance Fund. "It was like Russian Roulette, and there were bullets in every chamber."
The damage still mars the Maryland landscape: Of 153 S&Ls in 1985, only 78 survived in a meltdown that cost taxpayers $130 million to $150 million.
Among the casualties nationally were more than 1,000 thrifts that cost upward of $500 billion including interest -- more than the Vietnam War -- representing $2,000 for every man, woman and child in the United States.
Just as Maryland fired one of the early warning shots, the state has been swept into the closing chapter of perhaps the nation's greatest financial scandal this century. Standard Federal Savings Bank of Gaithersburg, the victim of bad real estate loans and fluctuating interest rates, was one of the last thrifts liquidated by federal authorities in March, on the eve of the 10th anniversary of the Old Court run.
But even as Washington closes the books on the thrift crisis, regulators, analysts, politicians and others are still sorting out what happened. Why were dire warnings ignored? Who was to blame? How much will it ultimately cost taxpayers? And, in spite of reform, could it happen again?
The first hint of the disaster flickered across a screen on March 14, 1984.
Edwin J. Gray, then the nation's chief thrift regulator, watched in dismay a videotape of a huge condominium project laying in waste along Interstate 30 near Dallas. As far as the eye could see, there were vacant condos, slabs of concrete and the scars of vandalism -- a bloated project bankrolled by Empire Savings and Loan of Mesquite, Texas.
"It was like a civilized battlefield," Mr. Gray recalled.
That very day, he shut down the thrift, the first closing publicly blamed on fraud in the history of the federal S&L system.
Something had gone terribly wrong. The federal government -- taxpayers in the end -- were guaranteeing a fast and loose industry. Almost from the day he assumed control of the federal bank board on May 1, 1983, Mr. Gray had raised the red flag. But no one -- not Congress, not the Reagan administration, not the industry -- listened.
"I was the messenger," Mr. Gray said. "But they didn't like the message."
Maryland didn't heed the warning signs, either.
Less than two months before the state's thrift industry collapsed, Ohio's S&L system had gone under. But then-Gov. Harry R. Hughes assured fellow Marylanders on March 28, 1985: "We are not in trouble with our savings and loans. . . . The savings and loans are sound."
Was it merely Pollyanna politics, or misguided faith?
"You had to have been there in the early '80s when Ronald Reagan was elected" president, said a former federal bank board official. "It was the genius of the free market and deregulation. Anybody who could beg, borrow or steal $2 million could own his very own S&L."
Jeffrey A. Levitt saw the possibilities when he and his two partners, Allan H. Pearlstein and Jerome S. Cardin, bought Old Court in September 1982. What was once a neighborhood thrift that ambled by on about $140 million in assets was transformed into a juggernaut in less than three years.
In one month alone -- February 1985 -- Old Court took in more than $100 million in deposits.
"I bought into this when S&Ls were at the lowest peak," Mr. Levitt said in early 1985. "I believed I could do something nobody could do."
He did.
There were virtually no boundaries as Old Court ignored regulations on commercial and construction loans and rules on the thrift's minimum net worth.
Through Old Court subsidiaries and limited partnerships, Mr. Levitt speculated in wild real estate deals, even investing in a $2 billion Florida housing project.
Old Court money was passed out like candy: Thrift officers and directors and their families were granted millions in unsecured loans.
