(h/t to CR)
Seattle Times has a good story regarding the WaMu's high risk strategies. Several thoughts:
1) American capitalism can be characterized by a complete lack of accountability; and
2) WTF!?! Where was the Office of Thrift Supervision?
The articles leads off with a story of potential misleading public statements from Kerry Killinger while CEO of WaMu:
On Sept. 10, 2007, Washington Mutual CEO Kerry Killinger stood before an audience of analysts and money managers and assured them the Seattle-based thrift would come out of the housing slump stronger than ever.
WaMu, Killinger told the Lehman Brothers conference, had tightened its lending standards, could access plenty of cash, and was "picking and choosing carefully" when it came to making new loans.
"This frankly may be one of the best times I have ever seen for taking on new loans into our portfolio," he said.
But even as he spoke, WaMu was a dead bank walking. The company had plunged headlong into the business of making exotic, high-risk home loans, selling many of them to investors but holding onto others; now defaults on those loans were rising, and big investors had lost their taste for them.
Did he know where his business model was heading when he gave this speech? A year after this speech he was fired and two weeks after that federal regulators seized WaMu. Sounds like a serious misrepresentation?
Here is a little taste of what happened to WaMu:
• In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk — the very standards and practices that had helped it grow in the first place.
• WaMu's riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business.
• WaMu's subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 — the peak of the boom — were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.
By the summer of 2004, nearly 60 percent of the loans WaMu was making were the riskiest sort — option ARMs, subprime mortgages and home-equity loans.
Where was OTS? FYI - OTS also supervised IndyMac and Countrywide.
Where is the accountability? Kerry Killinger, the CEO that led WaMu down this disastrous path received a golden parachute for $44 million. Nice chunk of change for destroying a company with things like this:
As WaMu was weakening its lending standards, it was making sure its underwriters and credit-risk managers wouldn't get in the way.
In an internal newsletter dated Oct. 31, 2005, and obtained by The Seattle Times, risk managers were told they needed to "shift (their) ways of thinking" away from acting as a "regulatory burden" on the company's lending operations and toward being a "customer service" that supported WaMu's five-year growth plan.
Risk managers were to rely less on examining borrowers' documentation individually and more on automated processes, Melissa Martinez, WaMu's chief compliance and risk oversight officer, wrote in the memo.
Again, where is the accountability? Maybe, there should be some level of disgorgement of past bonuses from executives who were this reckless or worse fraudulent. A lien on all assets and property of the guilty executives.
Just a thought.