“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.