A classic case of bad banking. (bank failure at Blackstone Bank and Trust Co.)

A CLASSIC CASE OF BAD BANKING

On that April day in 1989, Dan Dart, chief executive officer and president of Blackstone Bank and Trust Co., knew something was seriously wrong. Four condominiums at the bank's New Bedford development had sold several weeks before, but the other 17 condos that were supposed to close didn't.

Dart was worried. If the condos did not move, the developers would be unable to pay back their $2.5 million loan and the bank, with a little more than $5 million in equity, would not meet its capital requirements. Those condos would make or break Blackstone Bank.

Desperate to find out what happened, Dart jumped in his black Saab 900S and cruised down to the 138-unit Willows development. When he saw the condos, he knew why they weren't selling.

The eight condo buildings had indoor swimming pools--four feet of water in their basements. And the flooded units overlooked a slum--the rest of the development's condos. The buildings were falling apart, with siding hanging off, roof shingles missing and all appliances ripped out.

Dart surveyed the mess and knew his two-year-old bank was in deep trouble. "The Willows was our Waterloo," said Dart, reflecting on that fateful day nearly three years ago.

In the penumbra of Bank of New England's fall in January, one of the country's largest and most costly bank failures, Blackstone's seizure by regulators on March 15 was uneventful and inconsequential. Its failure didn't alter the regional banking industry nor did it pull down countless borrowers in its wake.

Blackstone was simply another small bank that got swamped in bad real estate loans and capsized in the region's turbulent economy. Yet its meteoric rise and fall illustrates the problems rampant in banking in the financially rambunctious 1980s. Since the one-office South End bank was so small--$53.3 million in assets at the time of its closing--it's easy to …