WaMu Executive attempts to blame Government

Washington Mutual’s former Chief Executive Officer, Kerry Killinger defended the company’s actions at a Senate hearing on April 13th and insisted that the government should not have seized the bank during the peak of the financial crisis in September of 2008.

Mr. Killinger argued that the company had sufficient capital and therefore should not have been shut down and sold for a rock bottom price of one billion nine hundred million dollars. He stated that the bank should have been given a chance to work its way through the crisis. He argued that prior to the crisis striking with force that the United States government treated the Seattle based bank unfairly. Mr. Killinger pointed out that the bank was excluded from a list of firms whose stock couldn’t be sold short by the government imposed temporary ban in July of 2008. Short-selling involves traders betting that a stock price will fall and they use borrowed shares to profit from the decline.  Mr. Killinger charges that unless you were part of the inner circle or too clubby to fail the benefits were obvious and for those of us outside the circle the penalty was severe. Mr. Killinger also contend that the banks did not receive help from the government in regard to doubling the limit on deposit insurance and new federal guarantees for bank debt which other financial institutions received in the fall of 2008.

The Senate Homeland Security and Governmental Affairs subcommittee found after an eighteen month investigation that Washington Mutual’s lending practices were prevalent with fraud that included the falsification of documents. The investigation concluded that the management within the company failed to contain the fraud despite internal probes. Investigator found that the company rewarded loan officers and sale executives based on the volume of loans closed which increased the pressure and allow the fraud.

Senator Carl Levin from Michigan came to the meeting armed with correspondence between senior executives at Washington Mutual. Senator Levin the panel’s chairman stated at the meeting that it would decide after the hearings if the panel would refer the case to the Justice Department for prosecution. The Senate subcommittee has been known for conducting investigation by bipartisan staff and has on occasion referred case to the federal prosecutor. The correspondence he held revealed that Senior Executives were anxious about elevated rates of delinquency and default in their high risk loans. The correspondence shows that WaMu executives wanted to sell loans as quickly as possible as securities on Wall Street.

Ronald Cathcart, former executive overseeing risk for WaMu and James Vanasek, former risk officer both came forward stating that they attempted to curb the practices of risky lending at WaMu but meet with resistance. Mr. Cathcart stated that he was increasing excluded from executive meetings and meeting with financial advisers when the banks response to the crisis was discussed. He stated that by January of 2008 he had been totally excluded from the meetings and was fired by Mr. Killinger shortly after. Mr. Vanasek told the panel that he attempted to limit the amount of loans to those who would be unlikely to repay and in the amount of loans made without verifying the borrowers’ income. He was unable to get Senior Management support in regard to the issue. Mr. Vanasek stated that was impressed with Lawrence Carter the examiner on the ground from the United States Office of Thrift Supervision but he was amazed that when Mr. Carter gave the information to his supervisor the Treasury Department Agency didn’t send a message back that was firmer based on the information. Mr. Vanasek stated that there seemed to be a tolerance or political influence.

Washington Mutual sales were fueled by the housing boom and investors of subprime mortgage securities. The company went from over 2 billion in 2000 to over 29 billion by 2006. Washington Mutual was sold to JPMorgan Chase by the Federal Deposit Insurance Corporation for a little over one billion.

Senator Levin stated that WaMu was in a practice of lending that created a time bomb. They choose speed verse quality.

The product that was WaMu money marker was the Option Arm. The investigation found that WaMu loan officers in California fabricated loan documents which the companies own probe revealed in 2005. The investigation also found that fraud levels within the companies Downey and Montebello offices exceed fifty eight percent and involved over eighty three percent of the loans. Auditors over the years had criticized the company for its sloppy lending. The company in 2007 had to close its Long Beach Mortgage Co affiliate and take over its subprime lending operations due to the fraud violations.