Banking Crisis Pitches Thousands Into Poverty : Depositors in Troubled Maryland Thrifts Unable to Withdraw Their Money

Marilyn McNeill made sure that she had enough money in the local savings and loan to live off the interest, buy a new house, redecorate, attend graduate school and enjoy an upper-middle class life with her three children.

However, virtually overnight, a banking crisis turned their cozy world upside down, pitching the McNeills into instant poverty.

Today, they sleep on the floor, ration shampoo, eat baked potatoes that friends bring over.

And consider themselves lucky.

Like the McNeills, thousands of families with funds frozen in three troubled Maryland thrifts have been unable to touch their money for up to six months.

The crisis is blamed for at least one suicide, and rumors of others are common.

Frustration, anger and despair are mounting like the stacks of unpaid bills and dunning notices on kitchen tables as the depositors face a bleak holiday season, struggling with their unexpected loss of financial independence.

“Nouveau poor,” Marilyn McNeill calls them.

The 112,000 frozen accounts at the privately insured Old Court, Community and First Maryland savings and loans involve more than $1 billion. By offering what were often the highest interest rates in the country--up to 13%--the thrifts attracted depositors from out of state as well as Maryland.

The state S&L; crisis was triggered by disclosure of mismanagement and high-risk investments at Old Court that started a run by panicky depositors in May. Runs on deposits at some of Maryland’s 101 other thrifts followed as concern grew over the safety of the private insurance fund covering them.

Fearing that the crisis would spread, Gov. Harry Hughes seized emergency control of the privately insured thrifts and limited customer withdrawals to $1,000 a month.

Maryland subsequently set up a temporary state insurance fund to back the thrifts, with the goal of getting the S&Ls; to obtain federal insurance, merge with other financial institutions or shut down.

So far, 36 have obtained federal insurance. Hughes ordered restrictions lifted at other thrifts after examination of books found that they were in solid condition. However, accounts at Old Court were frozen, with Community and First Maryland following suit in September.

Old Court’s owners and directors were accused of using deposits “as their own private slush fund” in a $200-million civil suit filed by the thrift’s conservator, and the attorney general ordered a criminal investigation. No charges have been filed.

Old Court went into receivership, a form of bankruptcy, on Nov. 8, and the two other thrifts remain under conservatorship, giving the state control of day-to-day operations. The Legislature has asked Hughes to devise a plan by January to begin freeing the deposits.

The toll is clearly emotional as well as financial.

An ailing, unemployed 46-year-old mechanic under treatment for depression killed himself on June 28, the day after his life savings of $27,000 were frozen by Old Court.

“I have $48 in my wallet,” he told his wife in a suicide note. The pathologist’s report said the Carroll County man may have swallowed lethal poison “because of the recent loss of his employment coupled with the failure of a bank in Maryland.”

“He couldn’t take the pressure,” said his widow, who asked that their names not be used. “Bills had to be paid immediately. Everything we had, everything we worked for, was in Old Court.”

Her husband suffered from painful arteriosclerosis and had quit his job a month before. “He thought that with the money in the bank and a part-time job, we could make it,” she said.

But he couldn’t find a job. And he couldn’t touch his money.

“Old Court was the explosive point for him,” his widow said. “In my heart I believe that.

“I lost more than my money. I lost my best friend.”

As a volunteer in the depositors’ group, Marilyn McNeill put in a second phone line to handle calls from distraught people wondering how they would survive, when the nightmare would end. The group pays the phone bill. McNeill listens to the stories of as many as 500 callers a week.

“I know of an old couple with $90,000 in the bank eating dog food,” she said. “They’re too ashamed to come forward. There’s a woman dying of breast cancer who’s unable to get hospital treatment. She needs surgery. She has $75,000 in the savings and loan.

“Another lady has a child with multiple sclerosis and needs a new wheelchair. She has $80,000 in her account, but can’t buy a new wheelchair.”

McNeill covers her face with her hands.

“This is not sensationalism,” she said. “This is not play. This is real.”