What do you mean my check is no good?
“All things may corrupt when minds are prone to evil.”
I looked out the window of our hotel room and saw lots of snow had fallen the night before. We arrived in New Hampshire for the kids to ski Attitash and Wildcat mountains. The weather in the fall of 1990 had been nice in Southern New England but Northern New England had experienced quite a bit of snow so it had a good jump on the ski season.
New Year’s Day 1991 was a Tuesday, so I brought the Family up on the previous Sunday morning to stay a few days not only to ski but to enjoy the New Year’s holiday as a family.
The Story Book Hotel and Resort is both a very old and new resort facility with all the amenities one would expect in a fine resort. It is located in Glen, New Hampshire where Routes 302 and 16 split. The two routes joined just south of Conway and traveled north through the bustling town of North Conway. At Glen 16 turned northeast toward Mount Washington, Wildcat Ski Area and Berlin, New Hampshire. If you continue north on route 16 you eventually reach the world famous Balsams Resort and Dixville Notch, where the US presidential election has its first returns every four years. The people there meet at the Balsams to vote and the ballots are tallied right away, usually by 12:15 AM. The results of the thirty some odd votes are known throughout the world and the Republican usually has a two or three to one lead.
Route 312 heads Northwest at that point in Glen to Attitash and later picturesque Crawford Notch, then meanders through north central New Hampshire taking you to a town right out of a Rockwell painting, Bethlehem, New Hampshire.
The main building at Story Book Inn is hundreds of years old and was the stay over for travelers to that region for more than a hundred years and still entertains guests today. They have a restaurant which serves old New England meals in a dining room built in the mid-1800s.
The rates for the resort are rather modest for a first rate facility and tends to be family oriented.
The skiing at Attitash and Wildcat, where my family spent Sunday and Monday was outstanding. Powder and groomed granular top to bottom.
We spent New Years evening sitting by the indoor pool supervising our children in the water. Arthur had just turned four a couple of days before we arrived and, along with his sister Helene who was then thirteen, made friends with children of a like age there.
There were a number of families who planned to return home the next day. Two couples were from Rhode Island, one of them from the city Woonsocket. For the Woonsocket family it was their first real vacation in years. They had had health difficulties in the recent past which led to employment and financial hardship. They had finally turned the corner economically. She was a technician in a dental laboratory which made false teeth. He had been a mill worker who lost his job when the company he worked for closed its doors some years before. He started his own small construction company doing repair work on homes.
With a loan from his local credit union, Marquette Credit Union - one of the largest and oldest credit unions in the country - he was able to finance the tools and equipment he needed to get started. As was the case for many small businesses in that part of Rhode Island, Marquette was his full service bank. His business and personal financial needs were met there. They had everything from checking, personal and business, savings, and loans to aid in his cash flow during the early stages in business.
The concept of credit unions had followed French Canadians in their migration from Canada to different parts of New England about a hundred years ago. Credit unions had started in the French speaking areas of Quebec by workers on the low end of the wage scale. Their intent and great success was to attract lots of small depositors and in turn loan the money for credit purchases large and small, depending on the area and size of the credit union.
Money could be borrowed for almost anything including furniture, kitchen appliances, automobiles, and in the larger credit unions, homes.
The credit unions were organized by church parish people, neighborhoods, workers unions, and communities.
In Rhode Island, credit unions offered many of the same benefits commercial banks did. Since they were not for profit their overhead was low and most paid dividends to their share holders (as their depositors are known). They also began to make small business loans and invested in various local enterprises.
Most (though not all) of the credit unions in Rhode Island were chartered by the state, while in many other areas they were federally chartered. The federally chartered credit unions were required to insure their deposits with the National Credit Union Association. The NCUA is congressionally chartered and would turn to the federal government to ensure smooth operation in the event of a run on federally chartered credit unions. As you may recall, we had such a run on Savings and Loans (S & Ls) during the early eighties. There were lots of scandals involved there and some of the S & L heads wound up in prison serving long terms.
The scandal is the largest theft in the history of the world.
Part of the problem was the deregulation which allowed S&L operators to loan themselves money. This is not so in commercial banks.
Neil Bush, former president George Bush’s son and one of current president George Bush’s brothers, ran an S&L into the ground in Colorado, the Silverado Savings and Loan. He was never punished for his deeds there.
Former Rhode Island Representative Fernand St. Germain [see Chapter Twelve], the powerful chairman of the House of Representatives Banking Committee, co-authored the deregulation. He got booted from office by Ron Machtley, a Naval Academy graduate who toured the district with a small pig to remind everyone of the pork barrel business St. Germain was involved with. There were also public housing scandals concerning the congressman in his home town of Woonsocket, where he also had a hand in the Marquette Credit Union.
Charles Keating, he of the largest of the S&L failures, when asked if massive lobbying efforts had influenced the government officials, he replied "I certainly hope so." Later the reputation of five US senators, five Democrats and one Republican were dragged into the scandal. He got Senators Dennis DeConcini of Arizona, Alan Cranston of California, Don Riegel of Michigan, John Glenn of Ohio and John McCain of Arizona sullied in his activities. By using his leverage created by big donations, Keating, met with bank regulators looking into his scams involving his Lincoln S & L. (All five had been recipients of large donations from Keating in the past.)
In 1980 the S & Ls were looted after the federal insurance on S & Ls (read that taxpayer guarantees) limits were raised from $40,000 to $100,000. The average savings account at the time was about $6,000.
Some of the loans made by the S & Ls were to a buffalo sperm bank, a racehorse with syphilis, and a kitty litter mine.
When S&L owners who stole millions went to jail, their sentences were about one-fifth that of the average bank robber.
The Rhode Island Share and Depositors Insurance Corporation (RISDIC) insured the deposits in Rhode Island’s state chartered credit unions and savings and loan operations. The problem was the so-called insurance couldn’t deal with a failure of even one of its member banks.
The State of Rhode Island’s supervision was poor at best. At worst it was criminal.
Add to that a period of serious ethical lapses by many public employees and agencies or those governed by them. The public was skeptical of government and agencies. One glaring example was the 1985 scandal centering on the Rhode Island Housing and Mortgage Finance Corporation (RIHMFC), and particularly on its director, Ralph Pari. The agency had been established to help lower income, first time home buyers, secure loans. Some of its funds were misused by Pari. The fallout was a shocked public. [See Chapter Twelve.]
RISDIC was a powerful force in Rhode Island. Its leaders were well connected in the legislature where they made campaign contributions a way of life. That led to successful lobbying.
The reason some of the banks and credit unions chose to be locally chartered in years gone by is there were fewer regulations and the insurance premium was less expensive than the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA). The supervision by RISDIC of the locally chartered financial institutions (banks and credit unions) was meager and the State of Rhode Island and Providence Plantations was lax. When the examiners called attention to red flag issues they were overruled by their superiors.
In other words, the state legislature, through its capacity as the creator of the rules and regulations, was in charge. That meant the powers that be at RISDIC called all the shots.
The Credit Unions became the piggy bank for politically wired individuals and foot dragging failed to reveal the shameful condition of the CU’s.
RISDIC bank examinations were generally accepted by the state’s department of business regulation.
A very expensive advertising campaign throughout the 1980s was run to convince depositors of the safety of the credit unions. Questions always abounded as to why the credit unions could pay significantly higher interest on accounts than other financial institutions in or out of Rhode Island. Incredibly, in some cases, the interest charged on loans was less than what the credit unions paid its depositors.
Beside the suspicions created by the “miracles” credit unions could do with money (loan for less than they paid to depositors) was the fresh memory of the national S & L foolishness and criminality.
Hence the full court press to do nothing.
The governor was Edward DiPrete, a Republican who presided over the state at the time the Reagan recovery tide raised all ships. It was sort of the era of good feelings in the Ocean State. Then the economy tanked during the first half of George Bush the father’s administration. After leaving office DiPrete was investigated and indicted for accepting bribes and extortion. It was the first time in state history for a sitting or ex-governor had been indicted.
By the time Bruce Sundlun was sworn in as governor of Rhode Island at noon on January 1, 1991, his decision to close 45 financial institutions had already been made. He was aware there had been some mini runs on Rhode Island Credit unions in the last days of December. He was also aware of the problems which existed in the credit unions and the myth of RISDIC.
At the time of its collapse RISDIC had as its chairman a fellow by the name of Joseph Mollicone, Jr. a banker later arrested for embezzling $13 million from his own bank, Heritage Loan and Investment Company.
The Heritage loss represented more than half of the insurance funds available to RISDIC. Their available funds were further jeopardized because of their ratio of premiums to deposits.
The NCUA requirements were more than twice RISDIC’s. Not only was the emergency fund larger for NCUA deposits, the limits on the insurance was $10,000 per account while RISDIC guaranteed deposits of up to one half million dollars.
Peter A. Navola, the executive director of RISDIC, stated publicly as late as mid-November 1990 the RISDIC assets were more than sufficient to take care of the deficiencies at Heritage and cover any other member institution should there be another problem.
Navola was another who made many contributions to Rhode Island legislators.
When bank auditors and prosecutors arrived at his office to question and then arrest him, Mollicone made a comment which resonated all over talk radio for months. He looked the first man into his office in the eye and asked, “You want a muffin”? (Did Mollicone use Marie Antoinette’s publicity flack?)
The collapse of RISDIC was assured by it’s own insurance fund of only $25 million to cover $1.7 billion of deposits. Ultimately the state set up an entity called the Depositors Economic Protection Corporation (DEPCO), whose function it was to gather the assets of the credit unions and take stock of its liabilities (deposits). Ultimately the Rhode Island taxpayer bailed out the failed institutions to the tune of $700 million. The bill will be paid over many years as a 0.6% add on to the Rhode Island sales tax.
On that New Year’s day morning we decided to head home by early afternoon rather than attempt to ski. The crowds and lift lines on such holidays are very trying. Instead, we stayed at the hotel and received permission to stay a couple of hours after we checked out so the kids could use the pool one more time.
We had lunch at the hotel restaurant. We finished eating at about 1:30 and I was about to pay our lunch tab when I encountered the lady from Woonsocket at the checkout desk. She was in tears. After she calmed down she explained her check was not accepted by the hotel because her bank was not authorizing payment. Her bank was Marquette Credit Union.
She explained that she had arranged to pay by check before arrival at the hotel a few days before. She had resisted using her credit card since they had only recently cleared themselves of credit card debt.
She was quite perplexed over why her bank would not honor such a small amount. She knew she had the funds in both checking and savings. She simply couldn’t understand what was happening.
On the trip home we listened to a Boston radio station. I don’t recall who we listened to but the news cast mentioned something about the closing of all the credit unions by the newly inaugurated governor in Rhode Island,
something about it being his first act as the state’s chief executive.
At that moment I realized what was in play now. The problems with Heritage Loan and Investment. A couple of callers were taken off the air on my show and a couple of the other shows at WHJJ when they began to talk about runs on Cranston Credit Union and a couple of the others. The rumblings about credit union problems started shortly after Thanksgiving. The mere talk of bank runs can cause bank runs. Taking them off was the right thing to do.
We were constantly assured by RISDIC and the Rhode Island agencies charged to monitor such things, there was no problem with the credit unions RISDIC couldn’t handle.
Governor Sundlun had the stomach wrenching responsibility of having to declare a bank holiday. He ordered they stay closed until the solvency of the credit unions could be ascertained and they could qualify for NCUA insurance. Within a couple of weeks some became NCUA insured but the overwhelming number of them could not because they were bankrupt.
We ultimately learned the deposits of nearly $1.7 billion were about $700 million in deficit.
Talk radio probably prevented a run on other banks and a revolution in the state.
Yet tens of thousands of people were separated from their savings and checking accounts. Virtually all of them were blue collar workers and/or small business people who relied on the solvency of the credit unions for their very survival.
One of the most heart wrenching calls I received was sometime in March, 1991. Another Woonsocket woman, a Marquette depositor, told us the following:
She and her husband recently sold his business and retired. He was a craftsman with a small business. In early December they sold their home and business and deposited their funds in Marquette. This was done in anticipation of moving to Florida after the holidays. They had done all their banking with Marquette for more than forty years and planned to transfer the money to a new bank in Florida when they moved.
During their life they had helped their children through college, paid their own way in everything from health insurance to housing. Marquette had been their only bank since they had been married.
Our caller had just buried her husband. She felt the stress of their banking woes contributed to his death.
To add insult to injury, she had to turn to her children to bury her husband.
Her story was just one of many we heard daily. I took such calls both on and off the air. We provided the only outlet for many of these depositors and this went on for many months.
Slowly but surely, some of the truth of how this all had happened seeped out. However, most of it would never have been known had it not been for WHJJ. All three of us, Arlene Violet, Steve Cass and I pounded away day after day. We heard from people on the inside who tried to warn the public of the looming crisis as many as ten years before.
Bruce Sundlun is to be commended for doing what may have been the least popular thing a governor had ever done in Rhode Island, yet the most necessary, closing the banks.
However, his bedside manner left a great deal to be desired.
The governor has a gruff exterior and was surrounded by some of the politicians responsible for creating the atmosphere for such a calamity.
One small example was when a lady approached him with her story of woe. The governor was besieged by protesters everywhere he went. Whenever he spoke with anyone he heard one story after another about how difficult life had become, jobs lost because small companies were separated from their cash or credit line, etc.
This one lady told him, “Governor, all I’ve had to eat this year is chicken soup”, to which Sundlun responded, “But I like chicken soup”. He probably did like chicken soup. Nevertheless, he sounded cold. (Was he using Joseph Mollicone/Marie Antoinette public relations flack? Cake, muffins, chicken soup!)
Insensitive? No. Lacking in a common touch? You bet.
When I first met Governor Sundlun, I thought he was a crass and stubborn person. After spending a large amount of time with him over the years I caught on that he was a man still trying to satisfy his own father’s view of him. His dad was a very stern individual and had been a Republican which is likely why the governor is a Democrat. His dad ran for the US Senate in 1964 and was a strong Barry Goldwater supporter. As a matter of fact Barry Goldwater contributed to both Sundlun’s campaigns.
Whether or not the taxpayer should be made to pay the bill for the collapse of the banks is a debatable point. I broached the question with the governor on air.
I suggested it was not the responsibility of the taxpayer to rescue the malfeasance of the credit unions leaders and the state’s failure to properly regulate them. The taxpayer didn’t create the situation.
Was it not the responsibility of the depositor to protect his own assets? Was it not clear to depositors the interest paid by those bad credit unions was not a good business practice?
The governor for the first time explained why he lobbied the legislature to pass his DEPCO plan. It was to bail out the depositors, a plan which included a portion of the state’s sales tax to be used to make the loans necessary to satisfy depositor claims.
Here was the governor’s rational:
The state had failed in its responsibility of regulating the credit unions and RISDIC. The data was clear from the beginning: For more than ten years it was evident the day would come when someone would have to put an end to the piggy bank system operated to the direct benefit of all sorts of politically wired individuals and companies.
It was necessary to maintain the fiscal stability of the state. The benefit of the bailout even aided many of those who paid for it.
The governor acknowledged he felt hurt at times by some of the things said about him. He was comforted by the fact those most injured by the crisis were ultimately made whole, or at least close to whole.
He further said talk radio had kept the pressure on the politicians in Rhode Island to clean up the mess. The only regret is the statute of limitations had run out on many of the economic crimes which had been committed and the stolen assets could not be recovered.
Some of the games which were played with the acquiescence of many of the bankers and regulators were low interest loans which were made and land flips and other connivances that happened.
One of the great means of scamming the credit union depositors was to make a construction loan to build, for instance, condominiums. Let’s say one-hundred units. The contractor would receive enough money to begin the project. When construction reached a certain point more of the money would be released. An inspector would certify the work was done, at times even when it was not. Before you knew it most of the money was gone and the existing units sold and the money and contractor vanished. The loss, instead of being written off, was carried as an asset on the books.
Scam after scam after scam. And most of the wise guys walked. How many of the bankers profited from the misfeasance as well?
I had two interesting encounters with Governor Bruce Sundlun after the two of us were no longer in our positions, he as governor and me as a talk host in Rhode Island. They both occurred in November of 1994.
One showed the humanity of the man. We encountered one another at a POW/MIA event held by the American Legion post in Warren, Rhode Island where Sundlun was the guest speaker. He talked about his experience as a downed pilot behind enemy lines in France during World War II. Keep in mind a Jewish man in France in the hands of the Nazis would not have been a good thing. He broke into tears when talking about the men who were left behind and/or had become POWs. Many were still unaccounted for. It was a side of Bruce Sundlun I had never before seen.
I introduced Arthur to him. The boy was weeks shy of his eighth birthday. I had been invited to the function because I had done numerous shows on the POW/MIA issue. During the social part of the occasion I introduced Arthur to the governor.
Governor Sundlun extended his hand to the boy as did the boy to the governor. Arthur was examining the shine on the governor’s shoes during the handshake. Sundlun knelt on one knee to be on the same eye level as Arthur, and admonished him to “look a man in the eye when you shake hands with him. Understand?” Arthur nodded in the affirmative.
Just prior to leaving the hall Arthur was standing near the exit when the governor stopped to say goodbye to him. Arthur hopped up on a chair, extended his hand and said goodnight to the governor. Yes, they both made eye contact.
A couple of weeks later we had another occasion to meet. For the life of me I don’t remember the circumstances of our chance meeting. It was in a restaurant in East Providence. We were both waiting for others.
The first words from Governor Sundlun were we’d both still have jobs if he had been my program manager and I had been his campaign manager. He then went into some of the things I had discussed about him on air including his saga about the squirrel and his trip to the “One Shot Elk Hunt” in Wyoming. He also expressed thanks for the manner in which I handled his learning he had fathered a daughter many years before. I had pointed out how he went out of his way to establish his paternity though the girl’s mother had never made such a request.
Also, when his wife was seriously injured in an automobile accident while jogging in up state New York a couple of years before. We kept the discussions on the accident civil.
The credit union fiasco left him severely hurt, a side he never showed the public.
Talk radio has an impact in quarters we’ll never know about. It is a powerful medium which is why it must be used responsibly.
What happened in Rhode Island sounded an awful lot like the national S & L scandal. Very few went to jail in either case. And the politicians who created the atmosphere for this to happen skated.
No, I never did hear again from that family we met in Glen, New Hampshire. I think about them a lot though.
I've also thought from time to time just how I would feel if I awakened some morning to learn all my financial assets were frozen in a crooked bank.