From Stark
“The Lost Bank” is Kirsten Grind’s compelling account of the rise and fall of Washington Mutual, the Seattle-based lender that grew from a relatively benevolent regional institution into a nationwide subprime mortgage behemoth before its spectacular collapse.
The strength of Grind’s book is her inside look at how bank executives managed to create a cultlike atmosphere that helped everyone at the bank tune out unwelcome information as they raced toward a moral and financial abyss.
In this review in Slate, Moe Tkacik savages Grind for her seeming acceptance of some bank officials’ rationalizations that that they were, at worst, stupid, even though her own book makes it clear how much blatant criminality occurred in the writing of WaMu mortgages. Her book makes it equally clear that top executives had ample evidence of that criminality and were blithely unconcerned as long as short-term profits were rolling in.
Tkacik’s criticism is valid. But don’t let Grind’s seeming lack of moral outrage put you off her book. It offers a vivid portrayal of an environment in which “nice” people became accustomed to doing bad things because everyone seemed to be doing them–while getting rich in the process.
Personally, I’m fascinated by the insane aspect of the WAMu corporate culture in the bank’s final years. Criminality aside, it should have been painfully obvious that the mortgage-lending binge was going to lead WaMu and companies like it to disaster. This graph from the Calculated Risk blog seems to provide pretty clear evidence of a housing bubble–and all of this data was available to people in the industry as the bubble inflated. Many people–including some people inside these companies–pointed out the folly of continuing to crank out real-estate backed loans at a time when real estate prices were roaring toward the precipice.
But people like WaMu CEO Kerry Killinger just tuned it all out and kept encouraging their employees to keep on selling mortgages as fast as they could. When mortgage lending rival Countrywide collapsed, the WaMu gang celebrated it as an opportunity to increase their own market share.
In the wake of WaMu’s collapse, Killinger and other WaMu execs faced civil suits from stockholders wiped out in the collapse, and from the FDIC. They settled those suits for multi-millions–but all but a tiny fraction of the settlement money came from insurance policies that WaMu purchased with the proceeds from its dubious activities. The New York Times reported on this in December 2011.
Great read, Mr. Stark.
Thanks for reading this book for us and reviewing it.
Don’t you think that a lot of us were willfully ignorant of the coming collapse, as well? Looking back, I can remember being warned that the real estate market was unsustainable and I refused to believe it.
I think that for some of these investment bankers, the atmosphere was similar to a high stakes poker game, as the risk increased, both financial and legal, so did the excitement. Some people thrive on risk taking. I’m not one those people.
“Criminality aside … ” Now isn’t that the operative mindset in this new world order?
Having bought, first Clinton, then Bush and finally Obama, it was game on with the lives and livelihoods of every average American at stake.
And it doesn’t require setting down your latte to count the banksters arrested and tried for these crimes against economic humanity.
Who’d expect people insulated from morality, deaf to any cry of ethical lapse, to be intimidated by laws they’ve guaranteed won’t be enforced?
John G–a good observation.
GHK–the “criminality aside” part was a short way of saying, “Even if these guys had no ethics, why did they do things that would inevitably destroy the bank?” I guess the answer is really not that obscure. They all made lots of money in the short term, and hardly anyone had to give any of that money back. What they did was bad for their employer, their investors, their customers and their country–but it was good for them.
You’ve got that right, John. And isn’t that, the greed and self-interest, what we’re told has made our’s the finest system in the world?
stark hasn’t read the book and has nothing “right”. the book hasn’t been released yet and starks comments come from Slate who got an advanced copy. had you done any homework on this stark you would realize the greater tragedy of the wamu collapse was that it was still financially sound and was illegaly seized by sheila bair and FDIC to hand over to her pal Jamie Dimon at JP Morgan. this is not over yet and criminal charges are pending against both. throughout this ordeal kristen grind has been on the outside looking in, has done no actual investigation of the crime, and is simply looking to make a buck with a weak and watered down version of the truth. and the truth is bair and dimon along with hank polson stole wamu for $1.8 billion when in fact it had $75 billion in assets and $35 billion in liabilities. this was the largest theft in history and people will yet be going to prison once giethner and bernanke are gone and can no longer persuade obama and holder to ignore this crime. and you mr. stark are guilty of trying to give the impression you read a book not yet available to the public. you too are a crook. a petty one to be sure, but a con artist none the less. and one final note: the paltry $1.8 billion jpmorgan purchased wamu for – they still haven’t paid. they got the $75 billion in assets though and avoided the $35 billion in liabilities through the bankruptcy process in Delaware’s corrupt banking courts. the real story here is how the 1% once again became rich on the backs of the middle class by robbing their 401k’s and common stock holdings. do your homework stark. this is as intellectually lazing a piece as I’ve ever seen from you – and there are plenty to chose from.
Wow Wamuvictim,
That’s quite a piece you wrote and I suspect it won’t live long due to some direct insults
even though predicting the censorship of any one post seems to insure its continued life.
Why your factual observations weren’t publicized is no mystery
and no banking people will be going to prison for this scam.
Too big to jail is the new American moral ethic.
Big being wallet-size and not girth or generosity or stature.
wamuvictim: We got an advance copy too and I did read it. Although I did not pay any attention to the JP Morgan situation that you mention, Grind does pay some attention to it in the final chapters. There is a lot of reason to wonder if WaMu’s demise could or should have been handled differently. She does report that Bair was afraid of being left holding the bag, and was anxious to get the liabilities off her plate. WaMu, like a lot of failed banks, had lots of assets. What percentage of those assets were loans that were never going to be paid back? I don’t pretend to know.
An explanation I’d heard at the time was that when John McCain decided to put his Presidential campaign on hold to rush back to DC to deal with the banking crisis (remember that? Made no sense, except desperation for some PR in a failing and flailing campaign), his GOP colleagues stalled the bailout to allow him to get to DC and act Presidential. That meant pushing the passage of necessary legislation to Monday from Thursday.
FDIC head Sheila Bair and her subordinates decided they could not wait for Monday, as WaMu was hemmorhaging well over $1billion/day in cash outfolws, as rumors of a copllapse were growing. At that point, WaMu had bled over $9 billion over the prior week, and the trend was accelerating. By Monday, Bair was afraid there’d be nothing to salvage, so they seized WaMu Thursday evening.
McCain’s campaign maneuver not only failed him, but in the end, failed the country, too.
Grind’s book reports that for WaMu’s negative amortization loans, the “value” of those “assets” kept growing, on paper. That’s because when borrowers made the minimum payment, the unpaid interest was added to the principal, so the amount of money owed to WaMu — the assets — continued to grow. On paper. That’s how banks keep their books. The more loans they have, the more assets they have. On paper. The banking euphemism for “bad loan” is “non-performing asset.”
All the failed banks held lots of assets. Performing assets, not so much.
But I do not mean to make light of WaMuvictim’s argument that WaMu and its stockholders got the shaft, to the benefit of better-connected players. Lots of people read the story that way, and Grind’s book does point out that there wasn’t a lot of transparency to the process that led to JPM’s takeover.
Dan Pike, fascinating evaluation.
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Dear Mr. Stark:
Thank you for bringing this book and this subject to the attention of your readers. It is important that the public understand the back room fraud committed by those in whom they have put enormous trust. The issues involved are remote, complicated and difficult to work through. And, the news media has done a poor job of making them clear to the American people. Accordingly, the public blames the government for the plight we currently find ourselves in. This will only make the spot bigger.
You are to be commended.
Drew Pettus
The writer with an axe to grind? File the book under fictional accounts. Not only does it throw unsubstantiated aspersions at the leadership of WaMu, the real issues of the banks downfall and takeover are completely obstructed from the public. My wife worked for WaMu and left in the year before the takeover and the claims that Killinger and others were somehow cult-like, unconcerned or had any dealings in criminality is absurd on its face. Not even 4 days after the forced takeover by the FDIC & the fire sale to Chase bank was WaMu to collect upon receivables in the $4 Billion range that would have clearly kept the bank afloat. They had a cash flow problem, not a management problem. So while WaMu had been looking to find a partnership with another bank prior to the closure; Chase bank offered a buyout to which the shareholders rejected. So ask yourself, how is it that WaMu was about to collect on revenues which would have kept them from defaulting would suddenly have the heavy hand of the FDIC & Chase coming down and driving the last stake into the bank? Now that’s where the investigation of criminality needs to be is on the players of the FDIC, Chase and those in Congress, specifically the likes of Senator Dodd and Frank who put in place the ‘flimsy’ mortgage policies that ‘ALL’ banks were to be following once they were implemented around 1999. Even the NY Times warned about the policy implementation: http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html
If anything, the writer ought to spend more of their valuable time researching the FDIC Witch hunt on WaMu as there are plenty of signs out there to see if they only choose to look for the truth instead of going on divergent paths. In truth, WaMu should still be open for business as usual but because of bigger players not wanting to play nice, again the public pays the piper whether it’s the former employees or the taxpayers for footing the bill in the end.
Read on, there’s more where that came from:
WaMued – The Story
http://www.wamu-shareholders-resources.com/wamued.html
The WAMU Story
http://www.wamustory.com/
WaMu seeks to investigate US regulators, others
http://seattletimes.nwsource.com/html/localnews/2010516883_apuswashingtonmutualbankruptcy1stldwritethru.html?syndication=rss
Bush White House Warned Congress About Fannie Mae Freddie Mac 17 Times In 2008, Alone
http://nicedeb.wordpress.com/2008/09/21/the-white-house-warned-congress-about-fannie-mae-freddie-mac-17-times-in-2008-alone/
How the Democrats Created the Financial Crisis: http://www.bloomberg.com/apps/news?pid=20601039&sid=aSKSoiNbnQY0&refer=columnist_hassett
…we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Chris Dodd – Countrywide Scandal, Mortgage Fraud and AIG Bonus Scandal: http://www.fireandreamitchell.com/chris-dodd-countrywide-scandal-mortgage-fraud-and-aig-bonus-scandal/
http://www.wamu-shareholders-resources.com/wamued.html and thought in case you weren’t aware of the latest discovery about the alliance of JPMChase-Obama-ACORN.
Ties that bind? Exploring JPMorgan’s ties to Obama administration and ACORN:
JPMC HAS GIVEN OVER $5 MILLION TO ACORN HOUSING SINCE 2001… JPMC RESPONSE – “ENTIRELY APPROPRIATE”… JAMIE DIMON CALLED OBAMA’S ‘FAVORITE BANKER’…
http://www.foxnews.com/video2/video08.html?maven_referralObject=8387002&maven_referralPlaylistId=&sRevUrl=http://www.foxnews.com/
Should Washington Mutual have been seized at all? You be the judge.
More interestingly, this book provides a ready example of the stunning extent to which all humans are truly masters in the arts of groupthink and self-deception.
“Ed Stephens” –While a lot of people are outraged with the way that the WaMu takeover was handled, your comment reads like the standard political propaganda that tries to fix blame for the financial crisis on Acorn, Democrats, Fannie and Freddie, affirmative action loan policies and on and on and on. Jamie Dimon is Obama’s favorite banker, right? So the FDIC turned WaMu over to Dimon’s bank in September 2008, BEFORE Obama’s election, just in case Obama got elected… or something like that. Please. When you argue that there was nothing wrong with lending practices at WaMu, you are making yourself and all the rest of your arguments absurd.
john you really didn’t take the time to review the ‘facts’ shared in my comment did you? Not likely, and instead you attack the messenger; so typical of talking point liberals that rely on emotional nonsense and instead of analyzing the reality behind an issue, throw out illogical diatribes rather than perform ‘research’ that would open your eyes to the real world.
I’ve done a lot of research on this particular topic, actually.