If you were to ask most people the names of the firms at the heart of the 2008 financial crisis, you’d probably hear Lehman Brothers, AIG and the favorites among right-wing conservatives, Fannie Mae and Freddie Mac. A few cognoscenti might conjure up Bear Stearns, Merrill Lynch, Countrywide or New Century Financial. At the top of the list for left-wing conspiracy theorists would surely be Goldman Sachs.
What’s interesting about that list is that none of those institutions was a vanilla-variety bank, the kind that takes in government-insured deposits and makes consumer and business loans. But that’s not because such banks avoided the crisis. Citigroup was recapitalized by the Treasury Department and lives on as the shining example of the bank that is too big to fail. Wachovia was saved from insolvency by an 11th-hour takeover bid by the much healthier Wells Fargo. And Washington Mutual, facing huge losses from risky mortgage lending and a run by depositors, became the biggest bank failure in U.S. history, taken over against its will by the federal government and quickly sold to JPMorgan Chase.
(Simon & Schuster) - 'The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History' by Kristen Grind
For anyone who still believes the banking industry’s fantasy that it was only Wall Street sharpies who caused the financial crisis, the refutation can now be found in Kirsten Grind’s “The Lost Bank,” which chronicles the rise and fall of Washington Mutual. As a reporter for the Puget Sound Business Journal, Grind spent the better part of two years covering the demise of the giant Seattle savings and loan and building a network of sources inside the organization. Expanding on that reporting, Grind, now at the Wall Street Journal, has produced a compelling case study of corporate incompetence and of how regulators are politically captured by the businesses they are meant to oversee.
“The Lost Bank” is largely the story of the overweening ambition and willful blindness of WaMu’s longtime chief executive, Kerry Killinger, who through a flurry of bold acquisitions turned the well-run local thrift into a national banking powerhouse. Unfortunately, the sophistication and competence of WaMu’s management did not keep up with its ambition, to say nothing of the size and complexity of its balance sheet.
By the time the housing bubble was in full swing, a large portion of the bank’s profit growth, so admired on Wall Street, was coming from what amounted to sleazy boiler-room lending operations run by commission-soaked sales executives. That growth was fueled by a long-running marketing campaign — “The Power of Yes” — that came to define the bank’s culture and establish it in the minds of consumers as the lender that never said no.
Grind demonstrates that, time and again, subordinates warned Killinger about ridiculously risky lending practices, poor mid-level management, inadequate information systems and risk-management controls — even widespread fraud. And time and again, Killinger failed to take interest in these problems or insist that they be fixed. His way of dealing with them was to refuse to acknowledge them for as long as possible and then declare that they had been dealt with, eventually cutting himself off from anyone who insisted on bringing them up.