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WASHINGTON — Alan H. Fishman had been the chief executive officer of Washington Mutual Inc. for just one day when federal regulators delivered a message: Raise significant capital or find a buyer — and hurry.
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More than 18 months after the largest bank failure in U.S. history, regulators of the collapsed Washington Mutual Inc. faced a day of reckoning Friday, with a key lawmaker accusing them of gross incompetence.
April 16
WASHINGTON — The housing -fueled rise and rapid fall of Washington Mutual may be the most forgotten story of the financial crisis.
Four years later, we still hear about Lehman Brothers, Bear Stearns, and Tarp, but not about the largest bank failure in U.S. history. Kirsten Grind, the author of a new book out Tuesday about WaMu titled "
"One, it was based in Seattle. So even though it had $307 billion in assets [and] it was all over the country, they did not have a lot of clout," Grind said in an interview. "I think that it was very easy to forget about, because in a way it was handled so smoothly. It failed. JP Morgan took over, swooped in, cleaned it all up. It didn't cost the FDIC anything."
Grind was a 2010 finalist for the Pulitzer Prize for her coverage of WaMu as a reporter for the Puget Sound Business Journal. Now at the Wall Street Journal, she chronicled the once-sleepy bank's buying spree in the 1990s and 2000s, its aggressive push into risky mortgage lending, the bank run that led to its failure in late September 2008, and the controversy surrounding its sale by the FDIC to JPMorgan Chase.
The book is deeply reported, drawing on more than 200 interviews and a huge trove of emails compiled in government investigations, but it does not follow the mold of D.C.-insider narrative used in many of books about the crisis.
To some extent, that's because WaMu was an afterthought in Washington. Its longtime CEO, Kerry Killinger, was not interested in forging political connections. And despite its size, WaMu was not considered a systemic risk in the way that many other large financial institutions were.
"But to be honest, in Seattle especially, we would just marvel at the fact that there was this gigantic failure, and it was virtually ignored," Grind said.
Following is an excerpt from an interview with Grind:
WaMu's now-infamous ad slogan from 2003 was "The Power of Yes." Did that idea — that the bank was not in the business of saying no to customers — begin to permeate the company?
Oh absolutely. I'm a firm believer that everything at every company starts with the CEO, no matter what. So Kerry gets up and decides in the early 2000s, 'I want to be the biggest mortgage lender in the country.' Now he didn't get up and say 'I want to be the biggest mortgage lender, and let's go out and make all these terrible loans.' In fact, the ironic thing about it is he was obsessed about careful underwriting. In meetings he would often say: We have to be careful about how we make these loans. But him saying at the top, we've got to grow bigger, that translated down to all these mid-level managers, and suddenly all these guidelines are eroding, and everyone's just saying yes, and there's no control over it.
When you interviewed some of the people who were involved in the high-risk mortgage machine at WaMu — with all the excesses, and in some cases, it seemed pretty clear from your reporting, fraud that went on — how did people look back at it now, with the benefit of hindsight?
They're just incredulous about it. These people, absolutely some of them were committing fraud. I mean, there's no doubt about that. But the majority of people, it was hard to realize while you were in it how absurd it was. At one point I think I compared it to Stockholm Syndrome, that syndrome when you're kidnapped and you start sympathizing with your captor. I mean, that's what I thought all the time when I was interviewing these people. Because now they're like, 'We just can't believe it.' 'How crazy is that that we did this?' But if everyone is doing something, think how hard that would be to not do it, right?
It's almost like when you couldn't see the whole machine you could kind of say, the parts I don't see and understand must make better sense.
Absolutely. And let's be honest — they were all making a ton of money, right? They were making a ton of money. So why are they really going to question what's going on?
The title of the book is the book is "The Lost Bank," and it seemed to me that Kerry Killinger sort of lost track of who he was as WaMu grew beyond his wildest dreams. Is that your view?
That's exactly my view, and that's exactly why we called it "The Lost Bank." Because not just Kerry, but everyone sort of in the book gets lost. The other executives, the homeowners, just everyone across the board.
His story is just so fascinating/terrible. He sort of represents what has happened to so many people and what can happen to all of us, really. So he was this very hard-charging young executive, was promoted at an incredibly early age to be a bank CEO. He takes this tiny little bank and grows it into this incredibly well-respected, amazing financial institution that people loved. But then you just slowly start to see how he begins to believe his own press. And he gets sort of obsessed with this notion of just having to grow the bank more and more, and competing with all the big financial institutions on the East Coast. And he just can't rein that back in. And he just got sort of obsessed with the corporate jet and the trappings of the CEO. When you talk to any of the executives of the bank about it now, they all just can't believe it, because you see this guy who was so humble — he's from Iowa — turn into this sort of person that was just obsessed with everything around him.
Regulators' decision to fail WaMu is still controversial. And I think your book offers the most detailed account yet of how those events unfolded. Do you think that regulators were right to act, or was WaMu allowed to fail because it wasn't as politically connected as most of the other big banks?
I almost wanted the reader to decide for themselves. Because look, there are the two sides, right? You're Sheila Bair at the FDIC. You're seeing this bank lose billions of dollars, nearly $3 billion of deposits in one day alone. Of course you are panicking. The part where it gets controversial is the way that that was brokered with JPMorgan Chase. And the fact that because WaMu was politically not connected — you know, they never put a premium on dealing with Washington, like all these big banks — their efforts to save themselves were basically ignored. You had this new CEO come in — he's doing everything he can to save this institution, trying to line up buyers — and he's just not getting anywhere. The bank had no credibility in Washington whatsoever.
And so even on the day it failed, the government agency sort of painted this picture of 'Oh my God, the bank was about to run out of money.' I mean, absolutely not. It was in severe financial health. But the liquidity projections that I uncovered and show in the book, it could have absolutely survived. Now the question is how long it could have survived. It definitely wasn't just going to be able to survive on its own in this ridiculous financial crisis environment. But Tarp was passed six days later. Six days later. And all these other banks got this bailout that WaMu was ignored for. So it is very controversial.
You talked to hundreds of people, and in any project like this, I think people's motivations for talking to an author will be different. What was your view of some of the different motivations that people had for talking to you?
There's always an agenda. So I would say a lot of the agenda for a lot of executives and employees was frankly damage control — to make sure that they were coming across okay in the book. That's just normal.
You will notice there's a lot of footnotes in the book. That's because frequently there would be a meeting of five people. Three people would say one thing happened, two people would say completely opposite. And so one of those motivations is this one group of people — whether it be a government agency or WaMu executives or JP Morgan Chase — were trying to discredit the other. And in some cases, people were just flat-out lying. I would have to choose — Well, which one am I going with? — and then I would footnote the other one.
What are the lessons of the WaMu story for the banking industry?
I guess I would say to banks in particular, but also to all companies, having that relationship with your customer is so crucial. And you can see how the financial system has moved away from that completely. Yes, we still have all these community banks around the country, and that's great. But really, most of the business is being done by like three gigantic banks that have zero relationships with their customers. They try, but it's not the same as it was when WaMu was a little bank in the Northwest seeing its customers every day. And that's one of the main reasons that has led to all this financial turmoil, I think, is that company leaders are so distant from the people they are dealing with.
