Bear Stearns. Lehman Brothers. IndyMac. Merrill Lynch. Washington Mutual. The parade of banks in trouble is all over the news pages in what former Fed Chairman Alan Greenspan called a “once-in-a-century type of financial crisis.”
For Baltimoreans, it deja vu all over again. It’s not that long ago that prosecutors, lawyers and asset-recovery firms were trying to sort out the savings and loan crisis. Old Court Savings & Loan was one of more memorable of the more than 740 S&Ls nationwide to go belly-up, but it left an effect with lessons in “greed” worthy of Gordon Gecko.
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The S&L bailout cost up to $150 billion. When the dust settled, the state of Maryland lost about $125 million. In today’s market climate, that’s chicken feed. And while the totals were lower than today, the damage was widespread.
Picture depositors in more than 740 S&Ls nationwide having assets frozen and lives disrupted. Then recall Jeffrey Levitt, Old Court’s president, and his memorable wife, Karol. The two were monuments to ’80s wretched excess — especially the wretched part.
But their little house of cards came tumbling down — right on top of depositors. The Matisse and other works by renowned artists went up for auction with Christie’s. The Rolls-Royce and about a dozen other cars were sold by the Internal Revenue Service. Levitt didn’t go to auction, he went to the pokey for stealing $14.7 million.
It was quite a lesson and probably nothing new for older residents who had seen bank failures before. Yes, the big players are going under now. But it’s happened before.
U.S. News & World Report has a list that serves as a good gauge of history. For all the talk of the IndyMac failure, it’s still just the third-largest. Six of the top 10 biggest bank failures come from the 1980s when more than 2,000 banks failed. That’s more than twice the failures of the 1990s and six times the failures of the 1930s. The list is from July, so it’s not entirely current, but so far this decade we’ve had 32 failures.
Yes, 32. Not 2,000.
So what do we take away from all of this? First of all, the economy shifts — no matter how much people try to prevent it. Greenspan was widely credited with a smooth economy when he was in office. Now critics say those artificially low interest rates delayed pain so that bad news hit harder.
The other takeaway is what I call the Economy of One, to borrow a term from the U.S. Army. You can’t affect the overall economy, so focus on the Economy of One.
Is your own financial house in order? If you have a lot of savings, is more than $100,000 in any one location? (That’s the Federal Deposit Insurance Corp. limit for insuring deposits.) Do you have reserves in a second bank or credit union? You should. Even if your money is insured in a bank that has troubles, it might take time to get it. Do you have any cash reserves at home for emergencies? Do you spend too much? Save too little?
Those aren’t fun questions, but they are a lot easier than the alternative.
Dan Gainor can be seen each week on Friday afternoons on the new Fox Business Network. He is T. Boone Pickens Fellow at the Media Research Center’s Business & Media Institute, a career journalist and media commentator. He can be reached at [email protected]
