Cold Reality for a Monday Morning
Jay Fitzgerald quite properly points with approval to this excellent piece by Doug Bailey, recalling the downfall of Boston area banks twenty years ago, and all from the same problems plaguing us now.
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.