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The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History
Based on reporting for which the author was named a finalist for the Pulitzer Prize and the Gerald Loeb Award, this book traces the rise and spectacular fall of Washington Mutual.
During the most dizzying days of the financial crisis, Washington Mutual, a bank with hundreds of billions of dollars in its coffers, suffered a crippling bank run. The story of its final, brutal collapse in the autumn of 2008, and its controversial sale to JPMorgan Chase, is an astonishing account of how one bank lost itself to greed and mismanagement, and how the entire financial industry—and even the entire country— lost its way as well.
Kirsten Grind’s The Lost Bank is a magisterial and gripping account of these events, tracing the cultural shifts, the cockamamie financial engineering, and the hubris and avarice that made this incredible story possible. The men and women who become the central players in this tragedy— the regulators and the bankers, the home buyers and the lenders, the number crunchers and the shareholders—are heroes and villains, perpetrators and victims, often switching roles with one another as the drama unfolds.
As a reporter at the time for the Puget Sound Business Journal, Grind covered a story set far from the epicenters of finance and media. It happened largely in places such as the suburban homes of central California and the office buildings of Seattle, but Grind covered the story from the beginning, and the clarity and persistence of her reporting earned her many awards, including being named a finalist for the Pulitzer Prize and the Gerald Loeb Award. She takes readers into boardrooms and bedrooms, revealing the power struggles that pitted regulators at the Office of Thrift Supervision and the FDIC against one another and the predatory negotiations of investment bankers and lawyers who enriched themselves during the bank’s rise and then devoured the decimated bank in its final days.
Written as compellingly as the finest fiction, The Lost Bank makes it clear that the collapse of Washington Mutual was not just the largest bank failure in American history. It is a story of talismanic qualities, reflecting the incredible rise and the precipitous collapse of not only an institution but of trust, fortunes, and the marketplaces for risk across the world.
During the most dizzying days of the financial crisis, Washington Mutual, a bank with hundreds of billions of dollars in its coffers, suffered a crippling bank run. The story of its final, brutal collapse in the autumn of 2008, and its controversial sale to JPMorgan Chase, is an astonishing account of how one bank lost itself to greed and mismanagement, and how the entire financial industry—and even the entire country— lost its way as well.
Kirsten Grind’s The Lost Bank is a magisterial and gripping account of these events, tracing the cultural shifts, the cockamamie financial engineering, and the hubris and avarice that made this incredible story possible. The men and women who become the central players in this tragedy— the regulators and the bankers, the home buyers and the lenders, the number crunchers and the shareholders—are heroes and villains, perpetrators and victims, often switching roles with one another as the drama unfolds.
As a reporter at the time for the Puget Sound Business Journal, Grind covered a story set far from the epicenters of finance and media. It happened largely in places such as the suburban homes of central California and the office buildings of Seattle, but Grind covered the story from the beginning, and the clarity and persistence of her reporting earned her many awards, including being named a finalist for the Pulitzer Prize and the Gerald Loeb Award. She takes readers into boardrooms and bedrooms, revealing the power struggles that pitted regulators at the Office of Thrift Supervision and the FDIC against one another and the predatory negotiations of investment bankers and lawyers who enriched themselves during the bank’s rise and then devoured the decimated bank in its final days.
Written as compellingly as the finest fiction, The Lost Bank makes it clear that the collapse of Washington Mutual was not just the largest bank failure in American history. It is a story of talismanic qualities, reflecting the incredible rise and the precipitous collapse of not only an institution but of trust, fortunes, and the marketplaces for risk across the world.
400 pages, Hardcover
First published June 12, 2012
About the author
Kirsten Grind
2 books21 followersI live in New York City, but I'm a West Coaster at heart. I love the outdoors - running, biking, hiking, backpacking - and I am deeply obsessed with the ocean, particularly Swami's in Cardiff, Calif. I've always been a newspaper journalist, covering a variety of business topics until I landed on finance, now at The Wall Street Journal. I am a huge bookworm - when I was 13, my father feared I was on the verge of a nervous breakdown from reading too much.
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June 19, 2012
Being a ten year veteran of WaMu and having spoken with many people in many different parts of the bank since it's failure, having followed much of what has been written about the events and my own experiences, I have to say that this book tracks very closely with what I was able to piece together as to the eventual failure of WaMu. In this, it appears that it is very reliable and accurate with only very minor nuances that maybe were not fully fleshed out or understood. Given my knowledge of the events, I was not sure how much 'new' information I would find but I certainly did. There were times that things were made more complete of a picture for me (as the account of the daily final run on the bank), things that gave insight into the higher levels of the company (such as the lack of leadership fortitude of Killinger), and things that were down right surprising (such as the deal that almost was made for Countrywide and the discussion of buying New Century). Overall, this is a great resource for someone that is interested in knowing about the death of WaMu or getting another look into what became the Credit Crisis and eventually the Great Recession.
It is clear that ultimately the fate of WaMu was in the hands of the board and management of WaMu. The coupling of errors in judgement (an ever increasing appetite for riskier loans even in the face of a deteriorating housing market) and failures of leadership, management, and oversight (as is the case with an out of control Home Lending Group) eventually positioned the bank to the position that it was in danger. It also seems though that even with the events that unfolded, the seizure of WaMu did not have to happen or at least not in the timing that it did. This seems to me to be because of numerous errors and agendas that were at play, from a CEO who did not provide adequate leadership, to a weak OTS, an incompetent and aggressive FDIC, undermining by a cut throat group of executives at Chase, and generally a bias of those in decision making circles that WaMu was not worth saving (largely due to the fact that WaMu was a consumer based company and not entangled in all of the exotic products that fueled the bubble much more so than Option ARMs ever could on their own- e.g. MBS, COD, etc). On a personal note, I remember being at a State of the Group meeting and listening to Rotella outline how we were going to focus more on 'higher margin loans' (i.e. sub prime, equity, etc). This was in early 2006, and at the time I was thinking "That does not make sense, the housing market is slowing and declining" but eventually I thought "Well, they are smart people and know more than I do". This forever will be a lesson to me- trust myself and never think others are so smart that it cancels my own good sense and judgement.
It is amazing how one little public letter by a Senator can set in motion so much devastation. Sure, one could argue that the devastation would have happened at some point because of the poor decisions and execution made in lending practices and not to mention the exotic products fueling the housing boom but in banking, one can not underestimate the importance of confidence. The lack of which can destroy banks. Schumer sent in motion the failure of Indymac. Most likely Indymac would have failed but not when it did and not in such a horrific fashion, if not for Schumer's letter. This in turn not only put pressure on WaMu in the first run on deposits but it also did two important things: 1) Put in the mind of deposit holders the long lines and frustration of account holders unable to access their money and 2) sending the media off in a frenzy of constantly asking 'who is next to fail'? The eyes of the media landed on WaMu (at WaMu's own fault) and that energized account holders to panic and withdraw money that was FDIC insured. As the previous failures of Indymac, Bear Stearns, and a host of smaller mortgage lenders increased the problems that lead to the Credit Crisis, so did the failure of WaMu increase it further leading to the failure of Lehman Brothers and eventually a near complete meltdown of the world's financial markets. The jumbled and mishandling of these events (having to do with WaMu and others) is amazing. To hear people like Bair thing that they did well and the WaMu seizure was not even a 'blip' is mind blowing in how they fail to see the big picture.
I was struck by how inept Killinger was to manage crisis. We are given a picture of a person who is completely unable to accept and act on things that need to be confronted and changed. It is too bad that the first real crisis that severely required a CEO able to navigate in crisis was one of the biggest the company ever saw and likely due to his inability to lead, the company paid the ultimate price. However, it is clear that the failure of a strong board acting as trustees of the company enabled the management team to increasingly bumble through acquisitions, increasing consumption of bad loans and eventually waiting much too late to make a change at the top. One has to wonder what Fishman would have been able to do if he had been brought in much earlier.
There is a story here that if you are not a WaMulian, you could miss. It is that where the company was built on such a strong foundation and inspired such heartfelt loyalty that it pains ex-employees to think of the failure even today (how many employees of Indymac or Lehman Brothers do you think actually cared about the company and were sad to see the companies demise versus their own career/financial situations?). The 'old guard' was moved out and the new executives were brought in. Pretty much everyone at all corners of the bank could feel this tension and could feel the change of the culture. Simply put, a lot of these new executives just simply were not good organizational fits to what WaMu was. They further corrupted the company as it was lead down a path of eventual extinction. One very graphic way to see this is how none of these 'newer' executives contributed to the Alumni fund when asked. That just does not seem to fit the brand attributes of 'fair, caring and human' that was the lifeblood of the company.
The one area that I think Grind has left unanswered and only lightly touches on is the roles of Chase executives in undermining WaMu. In several occasions she seems to hint at possible unethical and perhaps even criminal activity but backs away with footnotes saying that nothing was proven. I think that there is enough that has not been answered for an investigative journalist to further dig into this story. It is, in my view, unacceptable with how much circumstantial evidence there is about Chase's involvement (such as remembering going to a cab to a meeting but having no memory of the meeting at all) and the FDIC's absolute refusal to show any amount of transparency (as providing the heavily redacted documentations). It just seems that too many in the 'club' have too much interest in not letting people really know what they did and how they did it.
Overall, it is a good and easy read. It is a book that I would recommend.
It is clear that ultimately the fate of WaMu was in the hands of the board and management of WaMu. The coupling of errors in judgement (an ever increasing appetite for riskier loans even in the face of a deteriorating housing market) and failures of leadership, management, and oversight (as is the case with an out of control Home Lending Group) eventually positioned the bank to the position that it was in danger. It also seems though that even with the events that unfolded, the seizure of WaMu did not have to happen or at least not in the timing that it did. This seems to me to be because of numerous errors and agendas that were at play, from a CEO who did not provide adequate leadership, to a weak OTS, an incompetent and aggressive FDIC, undermining by a cut throat group of executives at Chase, and generally a bias of those in decision making circles that WaMu was not worth saving (largely due to the fact that WaMu was a consumer based company and not entangled in all of the exotic products that fueled the bubble much more so than Option ARMs ever could on their own- e.g. MBS, COD, etc). On a personal note, I remember being at a State of the Group meeting and listening to Rotella outline how we were going to focus more on 'higher margin loans' (i.e. sub prime, equity, etc). This was in early 2006, and at the time I was thinking "That does not make sense, the housing market is slowing and declining" but eventually I thought "Well, they are smart people and know more than I do". This forever will be a lesson to me- trust myself and never think others are so smart that it cancels my own good sense and judgement.
It is amazing how one little public letter by a Senator can set in motion so much devastation. Sure, one could argue that the devastation would have happened at some point because of the poor decisions and execution made in lending practices and not to mention the exotic products fueling the housing boom but in banking, one can not underestimate the importance of confidence. The lack of which can destroy banks. Schumer sent in motion the failure of Indymac. Most likely Indymac would have failed but not when it did and not in such a horrific fashion, if not for Schumer's letter. This in turn not only put pressure on WaMu in the first run on deposits but it also did two important things: 1) Put in the mind of deposit holders the long lines and frustration of account holders unable to access their money and 2) sending the media off in a frenzy of constantly asking 'who is next to fail'? The eyes of the media landed on WaMu (at WaMu's own fault) and that energized account holders to panic and withdraw money that was FDIC insured. As the previous failures of Indymac, Bear Stearns, and a host of smaller mortgage lenders increased the problems that lead to the Credit Crisis, so did the failure of WaMu increase it further leading to the failure of Lehman Brothers and eventually a near complete meltdown of the world's financial markets. The jumbled and mishandling of these events (having to do with WaMu and others) is amazing. To hear people like Bair thing that they did well and the WaMu seizure was not even a 'blip' is mind blowing in how they fail to see the big picture.
I was struck by how inept Killinger was to manage crisis. We are given a picture of a person who is completely unable to accept and act on things that need to be confronted and changed. It is too bad that the first real crisis that severely required a CEO able to navigate in crisis was one of the biggest the company ever saw and likely due to his inability to lead, the company paid the ultimate price. However, it is clear that the failure of a strong board acting as trustees of the company enabled the management team to increasingly bumble through acquisitions, increasing consumption of bad loans and eventually waiting much too late to make a change at the top. One has to wonder what Fishman would have been able to do if he had been brought in much earlier.
There is a story here that if you are not a WaMulian, you could miss. It is that where the company was built on such a strong foundation and inspired such heartfelt loyalty that it pains ex-employees to think of the failure even today (how many employees of Indymac or Lehman Brothers do you think actually cared about the company and were sad to see the companies demise versus their own career/financial situations?). The 'old guard' was moved out and the new executives were brought in. Pretty much everyone at all corners of the bank could feel this tension and could feel the change of the culture. Simply put, a lot of these new executives just simply were not good organizational fits to what WaMu was. They further corrupted the company as it was lead down a path of eventual extinction. One very graphic way to see this is how none of these 'newer' executives contributed to the Alumni fund when asked. That just does not seem to fit the brand attributes of 'fair, caring and human' that was the lifeblood of the company.
The one area that I think Grind has left unanswered and only lightly touches on is the roles of Chase executives in undermining WaMu. In several occasions she seems to hint at possible unethical and perhaps even criminal activity but backs away with footnotes saying that nothing was proven. I think that there is enough that has not been answered for an investigative journalist to further dig into this story. It is, in my view, unacceptable with how much circumstantial evidence there is about Chase's involvement (such as remembering going to a cab to a meeting but having no memory of the meeting at all) and the FDIC's absolute refusal to show any amount of transparency (as providing the heavily redacted documentations). It just seems that too many in the 'club' have too much interest in not letting people really know what they did and how they did it.
Overall, it is a good and easy read. It is a book that I would recommend.
February 9, 2021
I have a family history with Washington Mutual.
My mother was a teller there in the 1930s, and described a run on the bank that is mentioned in this book (“the first time I ever saw a million dollars in cash!”, she told me). She had to quit when she got married because teller jobs were for 'single girls' then. (Don't get me started on gender-based job discrimination – I am old enough to remember the classified ads separated by “jobs for men” and “jobs for women”.)
Through family connections in the bank, when I was a child I held passbook account #0002. I'm not sure who I inherited it from, but it was fun to see the tellers do a double take when they saw it.
We financed two houses through Washington Mutual.
Anyhow, all that is to say that I was sad to see it all fall apart in 2008 when Chase bought them from receivership. Although I had gotten part of the story from local newspapers and reading “The Big Short”, I was curious about the whole story of the failure of my hometown bank.
The main arc of the story is familiar to anyone who paid attention during the fallout in 2007-09: The ridiculous home loans made, the sense that the housing market would only go up and paper over the fragility of those loans, the hubris of bankers who felt the good times would never end.
This book zeroes in on the people at WaMu who changed the culture over time from a stodgy but stable family-friendly bank to a high-flyer that wanted to be the largest in the land. Unlike the suddenness of hostile takeovers, the change happened over a twenty year period and only really escalated in the last seven or so years. The CEO, Kerry Killinger, was seen as a savior when he arrived in 1988 to assist then-CEO Lou Pepper, and his attention to detail seemed to make up for his lack of charisma. Over time, though, Killinger's weaknesses drove the bank deeper into trouble: His disinclination to hear bad news, his averse nature to making hard decisions, and (yes) his lack of charisma that hobbled his communications. Other executives moved into a power vacuum and drove the bank deeper into risky vehicles.
By the time the Board of Directors finally fired Killinger, it was too late. The succeeding CEO only lasted 18 days before the FDIC closed the bank and sold it to Chase for a pittance. Could the bank have been saved? Possibly. In the world of high finance, complicated deals can be made, but the entire world of finance was imploding then and it's questionable that any deal would have stuck.
The Washington Mutual story then epitomized the era: Loose regulations and oversight allowed greedy people to milk the system for obscene profits, destroying a perfectly fine institution in the process.
I wish I had kept that passbook for account #0002. It would be an heirloom now.
My mother was a teller there in the 1930s, and described a run on the bank that is mentioned in this book (“the first time I ever saw a million dollars in cash!”, she told me). She had to quit when she got married because teller jobs were for 'single girls' then. (Don't get me started on gender-based job discrimination – I am old enough to remember the classified ads separated by “jobs for men” and “jobs for women”.)
Through family connections in the bank, when I was a child I held passbook account #0002. I'm not sure who I inherited it from, but it was fun to see the tellers do a double take when they saw it.
We financed two houses through Washington Mutual.
Anyhow, all that is to say that I was sad to see it all fall apart in 2008 when Chase bought them from receivership. Although I had gotten part of the story from local newspapers and reading “The Big Short”, I was curious about the whole story of the failure of my hometown bank.
The main arc of the story is familiar to anyone who paid attention during the fallout in 2007-09: The ridiculous home loans made, the sense that the housing market would only go up and paper over the fragility of those loans, the hubris of bankers who felt the good times would never end.
This book zeroes in on the people at WaMu who changed the culture over time from a stodgy but stable family-friendly bank to a high-flyer that wanted to be the largest in the land. Unlike the suddenness of hostile takeovers, the change happened over a twenty year period and only really escalated in the last seven or so years. The CEO, Kerry Killinger, was seen as a savior when he arrived in 1988 to assist then-CEO Lou Pepper, and his attention to detail seemed to make up for his lack of charisma. Over time, though, Killinger's weaknesses drove the bank deeper into trouble: His disinclination to hear bad news, his averse nature to making hard decisions, and (yes) his lack of charisma that hobbled his communications. Other executives moved into a power vacuum and drove the bank deeper into risky vehicles.
By the time the Board of Directors finally fired Killinger, it was too late. The succeeding CEO only lasted 18 days before the FDIC closed the bank and sold it to Chase for a pittance. Could the bank have been saved? Possibly. In the world of high finance, complicated deals can be made, but the entire world of finance was imploding then and it's questionable that any deal would have stuck.
The Washington Mutual story then epitomized the era: Loose regulations and oversight allowed greedy people to milk the system for obscene profits, destroying a perfectly fine institution in the process.
I wish I had kept that passbook for account #0002. It would be an heirloom now.
December 28, 2019
Amazing how arrogant these people were
August 12, 2015
Mrs. Grind was originally on the right track with her research back in the ealy days of the WAMU saga but somewhere along the way, she forgot to include all the 'juicy' bits of the story, i.e. corporate espionage and corrupt collusion between Jamie Dimon and Sheila Bair leading up to the takedown of WAMU by the FDIC and subsequent overnight firesale single bidder auction of WAMU assets to JPM for fractions of a penny on the dollar. Washington Mutual was a solivent bank at the time it was taken down and Washington needed a fall guy (mainstreet bank) to bite the dust in order to unleash TARP. Conveniently, Jamie Dimon needed to expand Chase's branches to the west coast via "Project West" in addition to addressing JPMs own troubled balance sheet at the time. Jump forward to present date and watch as assets are slowly rolled out of obscure places to be reflected on JPM's balance sheet like the recent $30 billion value "discovered" in the apartment loans that were part of WAMU's portfolio. Tens if not hundreds of billions more to be discovered that were taken from WAMU shareholders in an ongoing story of fraud and corruption of the highest order. Wait, watch and see. This book is only a preface to the complete story that is still unfolding.
January 14, 2022
The WaMu story went deeper than I ever knew. It was there, and then it wasn't and so many people's life savings were destroyed.
April 9, 2023
Cliff Notes version: WaMu failed because CEO Kerry Killinger had a midlife crisis. Change my mind.
I have read a lot of books about the wholesale / investment bank side of the 2008 crisis, focusing on Mortgage Backed Securities. However, this is my first book about the retail bank side of it. It provides a different perspective.
WaMu shareholders were wiped out. Mortgage holders lost their houses (not that they had much skin in the game). Who won? The loan originators who got bonuses and fancy trips to Hawaii for selling Option ARMs borrowers couldn't afford, often targeting Latinos who they knew didn't understand the mortgages they were pushing. The executives got huge bonuses for making "profits." Killinger is STILL reported to be worth around $50 million. Too bad the judicial system decided criminal charges couldn't be supported by the facts.
(Particularly insightful about the kind of people the WaMu executives were was Grind's observation that when WaMu executives set up an alumni assistance fund for WaMu employees who lost their jobs, none of the newer executives like Killinger and Rotella gave a dime. It was funded exclusively by the old-timers like Pepper, Wilson, and Faye Chapman.)
I have read a lot of books about the wholesale / investment bank side of the 2008 crisis, focusing on Mortgage Backed Securities. However, this is my first book about the retail bank side of it. It provides a different perspective.
WaMu shareholders were wiped out. Mortgage holders lost their houses (not that they had much skin in the game). Who won? The loan originators who got bonuses and fancy trips to Hawaii for selling Option ARMs borrowers couldn't afford, often targeting Latinos who they knew didn't understand the mortgages they were pushing. The executives got huge bonuses for making "profits." Killinger is STILL reported to be worth around $50 million. Too bad the judicial system decided criminal charges couldn't be supported by the facts.
(Particularly insightful about the kind of people the WaMu executives were was Grind's observation that when WaMu executives set up an alumni assistance fund for WaMu employees who lost their jobs, none of the newer executives like Killinger and Rotella gave a dime. It was funded exclusively by the old-timers like Pepper, Wilson, and Faye Chapman.)
December 29, 2013
Often when there is a complex news story that arrives in bits and pieces and is difficult to understand, I say that I will wait for the book to come out. This book may not be THE book about the financial crisis/recession that started in 2008 but it is an excellent introduction. Grind has put together an understandable and compelling account of the failure of Washington Mutual (WaMu) Bank. She paints vivid pictures of some of the personalities of involved, as well as the corporate culture of the bank.
And she leaves the reader to puzzle out what toxic blend of who’s ego, greed, or incompetence was the catalyst and why nobody seemed to able to right the ship.
And she leaves the reader to puzzle out what toxic blend of who’s ego, greed, or incompetence was the catalyst and why nobody seemed to able to right the ship.
April 24, 2017
Tragic tale, particularly when you knew the players. Great insight to what was going on behind the scenes in Washington, but so sad see all the components that led to the dominos falling and the downfall of a great company.....
June 4, 2018
Washington Mutual was the biggest bank failure in the U.S. With 3,600 branches and 43,000 employees spread across the nation, US$ 128 billions in deposits and assets of US$ 310 billions, there just was no reason why the bank should not have been bailed out and allowed to fail. It appears that the U.S. Government wanted to do away with community banks, and hence this decision. By the end of the financial crisis of 2008 more than 250 community banks, big and small, had been allowed to fail inspite of the US$ 700 billion bail out package.
In her book “The Lost Bank” Kristen Grind has wonderfully recounted and covered the failure of WaMu. The major cause for the failure was, of course, unbridled greed for more profits and cupidity of the top executives in believing that loans could be made without verifying the background and repayment capacity of the borrower (subprime loans).
Added to this scenario, build a ponzi scheme of new mortgages against the same property and the proceeds used to cancel the old outstandings.
That WaMu not only continued to sell mortgages through the same discredited advisor (whose 50% and 80% advances were found to be to fraudulent borrowers) but also rewarded him as the most successful advisor is beyond belief. Such an organization deserves to fail.
One of the most culpable person was the CEO Kerry Killinger who was at the helm of affairs of WaMu for seventeen years from 1991 to 2008. His removal as CEO in September 2008 was too little too late. Kerry Killinger was either too naive or too careless about the health of the advances made by WaMu. Probably had Killlinger been ousted in 2006 or early 2007, the story of WaMu may have been different. Had Fishman been appointed, maybe WaMu could have been turned around.
That said, the role of Sheila Bair, the Chairman of FDIC, is also suspect. What she saw in Jamie Dimon of JP Morgan Chase whom she favoured to take over WaMu remains a mystery. Even before Fishman could complete his private auction, FDIC had started her own negotiations with Jamie Dimon. The OTS which was the primary regulator of WaMu objected to certain actions of Sheila Bair. OTS Director Reich felt that if FDIC shopped around for sale of WaMu, it would send out signals that the bank would fail and could be acquired cheaply from the regulators.
Later, this would prove to be another point of contention between the two agencies. The FDIC would say that shopping around a bank that is about to fail and be sold on the cheap would not dissuade interested buyers from bidding on it on the open market. One FDIC official described this statement as “an urban legend.” The OTS would argue, in effect, that there’s no way companies would buy something more expensive now when they knew they could get it cheaper later.
In later interviews with WaMu’s bankruptcy examiner, the FDIC disagreed with JPMorgan’s recollection of the call, saying Bair encouraged JPMorgan to buy WaMu on the open market, not after a failure.
There is speculation as to whether JPMorgan and Santander agreed not to compete with each other when bidding on U.S. banks during the financial crisis. The speculation arises largely from a June 2008 e-mail sent by a JPMorgan executive, summarizing a meeting between Dimon and Santander’s chairman. WaMu, Wachovia, Suntrust, and PNC were among the possible acquisitions discussed by the two executives. “We covered them in detail and Jamie reckoned that these are opportunities in which JPMorgan would also be interested,” the e-mail read. “It is important to have an open dialogue with them as Santander would not pursue any one of these opportunities if JPMorgan were to do the same (can’t compete on price with JPMorgan for an acquisition in the USA). But Santander would probably hire JPMorgan as an advisor if we are not going after them.” A later report by the independent examiner hired in the bankruptcy of WaMu’s holding company dismissed claims of bid-rigging between the two companies.
In a later interview with WaMu’s bankruptcy examiner, Scharf disagreed with this recollection of the meeting. He recalled that Wigand was much more definitive, telling executives that the agency planned to close WaMu on Friday, September 26, and bids would be due September 24. Scharf’s board presentation from September 19, in which he discussed a purchase of WaMu from the FDIC, also reflects a September 26 closure date.
Thus overall, the role of JP Morgan Chase and FDIC is highly suspect and the dealings were not above board.
The book is extremely well written and readable. Informative and riveting. A must read for persons interested in the financial crisis of 2008.
In her book “The Lost Bank” Kristen Grind has wonderfully recounted and covered the failure of WaMu. The major cause for the failure was, of course, unbridled greed for more profits and cupidity of the top executives in believing that loans could be made without verifying the background and repayment capacity of the borrower (subprime loans).
Added to this scenario, build a ponzi scheme of new mortgages against the same property and the proceeds used to cancel the old outstandings.
That WaMu not only continued to sell mortgages through the same discredited advisor (whose 50% and 80% advances were found to be to fraudulent borrowers) but also rewarded him as the most successful advisor is beyond belief. Such an organization deserves to fail.
One of the most culpable person was the CEO Kerry Killinger who was at the helm of affairs of WaMu for seventeen years from 1991 to 2008. His removal as CEO in September 2008 was too little too late. Kerry Killinger was either too naive or too careless about the health of the advances made by WaMu. Probably had Killlinger been ousted in 2006 or early 2007, the story of WaMu may have been different. Had Fishman been appointed, maybe WaMu could have been turned around.
That said, the role of Sheila Bair, the Chairman of FDIC, is also suspect. What she saw in Jamie Dimon of JP Morgan Chase whom she favoured to take over WaMu remains a mystery. Even before Fishman could complete his private auction, FDIC had started her own negotiations with Jamie Dimon. The OTS which was the primary regulator of WaMu objected to certain actions of Sheila Bair. OTS Director Reich felt that if FDIC shopped around for sale of WaMu, it would send out signals that the bank would fail and could be acquired cheaply from the regulators.
Later, this would prove to be another point of contention between the two agencies. The FDIC would say that shopping around a bank that is about to fail and be sold on the cheap would not dissuade interested buyers from bidding on it on the open market. One FDIC official described this statement as “an urban legend.” The OTS would argue, in effect, that there’s no way companies would buy something more expensive now when they knew they could get it cheaper later.
In later interviews with WaMu’s bankruptcy examiner, the FDIC disagreed with JPMorgan’s recollection of the call, saying Bair encouraged JPMorgan to buy WaMu on the open market, not after a failure.
There is speculation as to whether JPMorgan and Santander agreed not to compete with each other when bidding on U.S. banks during the financial crisis. The speculation arises largely from a June 2008 e-mail sent by a JPMorgan executive, summarizing a meeting between Dimon and Santander’s chairman. WaMu, Wachovia, Suntrust, and PNC were among the possible acquisitions discussed by the two executives. “We covered them in detail and Jamie reckoned that these are opportunities in which JPMorgan would also be interested,” the e-mail read. “It is important to have an open dialogue with them as Santander would not pursue any one of these opportunities if JPMorgan were to do the same (can’t compete on price with JPMorgan for an acquisition in the USA). But Santander would probably hire JPMorgan as an advisor if we are not going after them.” A later report by the independent examiner hired in the bankruptcy of WaMu’s holding company dismissed claims of bid-rigging between the two companies.
In a later interview with WaMu’s bankruptcy examiner, Scharf disagreed with this recollection of the meeting. He recalled that Wigand was much more definitive, telling executives that the agency planned to close WaMu on Friday, September 26, and bids would be due September 24. Scharf’s board presentation from September 19, in which he discussed a purchase of WaMu from the FDIC, also reflects a September 26 closure date.
Thus overall, the role of JP Morgan Chase and FDIC is highly suspect and the dealings were not above board.
The book is extremely well written and readable. Informative and riveting. A must read for persons interested in the financial crisis of 2008.
August 10, 2022
- Banks are extremely sensitive to interest rates (just like airlines are extremely sensitive to oil prices): often times banks are hedged incorrectly, especially during periods of sudden interest rate hikes (less incentives to make loans - bank's bread and butter and in addition to having increased borrowing cost)
- Quantitative thinking vs qualitative thinking: instead of reading plain number reports, it's much more useful to think in narrative terms. Because number often paints a very different picture than what's really happening on the ground (the last CEO of WaMu famously wanted to visit the bank's call center to figure out how bad things are, instead of relying on reports)
- California has tendency to increase big and drop big in terms of real estate
- Sub-prime loan has its origin on the government's push towards lending into lower-income household. In order to compensate for the risk, the bank has to charge much higher interest rate for such loan
- Banks had no incentive to lie and package bad loans. Rather, it's Wall Street's appetite that leds banks to do so: banks do not understand why Wall Street want such risky assets and figure Wall Street much know something banks don't (Wall Street doesn't know either because the sell it to their clients, and their clients are typically not very bright)
- People have perceptions that real estate price won't drop times and times again
- When price first drop, people actually are happy: they think buyer can finally buy again (which is not true. Herd mentality dictates that when price goes up, everyone wants to buy; when price goes down, everyone wants to sell)
- Quantitative thinking vs qualitative thinking: instead of reading plain number reports, it's much more useful to think in narrative terms. Because number often paints a very different picture than what's really happening on the ground (the last CEO of WaMu famously wanted to visit the bank's call center to figure out how bad things are, instead of relying on reports)
- California has tendency to increase big and drop big in terms of real estate
- Sub-prime loan has its origin on the government's push towards lending into lower-income household. In order to compensate for the risk, the bank has to charge much higher interest rate for such loan
- Banks had no incentive to lie and package bad loans. Rather, it's Wall Street's appetite that leds banks to do so: banks do not understand why Wall Street want such risky assets and figure Wall Street much know something banks don't (Wall Street doesn't know either because the sell it to their clients, and their clients are typically not very bright)
- People have perceptions that real estate price won't drop times and times again
- When price first drop, people actually are happy: they think buyer can finally buy again (which is not true. Herd mentality dictates that when price goes up, everyone wants to buy; when price goes down, everyone wants to sell)
April 21, 2021
Back about 2007 I started using Washington Mutual as my main bank. That was because it was located across the parking lot from my workplace, and paid out the highest interest on savings accounts of any bank I knew of. A year later it went bust. I was wholly unaffected thanks to the quick work of regulators to effect an immediate sale of WaMu to JP Morgan Chase. So I was interested to discover this account of the WaMu collapse to learn the details all these years later.
The core of WaMu's problem was in issuing an overly-complex type of home loan during the 2000s called an Option ARM, and promoting them to people who were poor credit risks and who were too unsophisticated to understand what they were getting themselves into. These Option ARMs became a priority for WaMu because they were more profitable than traditional fixed-rate mortgages. More profitable for WaMu when it still held the loans, more profitable to securitize and sell them to Wall Street, and more profitable for the world's bond investors when rolled into a securitized bond. More profitable for everyone ... until the borrowers began defaulting en masse.
The "option" part of such a loan meant that the customer could choose from various levels of monthly payment each month. Naturally many customers would choose the lowest amount they were allowed to pay -- but that would not even cover the interest charge, so the interest would add to the principle and the balance would only increase instead of decrease over time. In this way Option ARM's became reverse-amortization loans for many people: month after month, the loan balance would increase instead of decrease.
Then when the "adjustable rate" part of the ARM kicked in, the loan would reset, and the option of paying a very low monthly payment often ended. Combined with declining home prices starting about 2006, the result was that many low credit-rating borrowers found themselves with monthly payments they could not afford, and with home loans that were now increasingly underwater, without the benefit of increasing home equity to save their bacon. Walking away from the loan becomes a rational option. Meanwhile, companies such as WaMu found the usual drug of securitizing these crap loans and selling them to Fannie Mae, Freddy Mac, and Wall Street investors suddenly was disappearing as an option because of deteriorating conditions and because, as securitized bonds, these were often proving to be poor-performers. So WaMu was stuck with these loans it was creating as 2008 progressed.
Interestingly per the chronology, even as late as summer 2008 it was not clear there was any real disaster in store. Shareholders were angry that WaMu had just reported a quarterly loss and had just issued shares in a big capital-raise that diluted ownership; and had also cut the dividend almost to zero. A turnaround was needed but it wasn't obvious that anything fatal was going on.
Things came to a head during the two weeks in mid-September 2008. This was when things got scary. Starting on a Monday, Lehman collapsed and the government refused to rescue it. Then Merrill Lynch had to be taken over by Bank of America. AIG almost failed and was only rescued because the government had gotten spooked by what happened when it didn't rescue Lehman a few days before.
As all this unfolded a bank run commenced on WaMu.
At this part of the book, the narrative becomes quite a thriller! WaMu and its new CEO, multiple other big banks, and multiple regulators went into non-stop meetings and negotiations trying to sort out what to do even as Congress and the Bush Administration were dealing with the threat of broader economic collapse. With each passing day the bank run depleted WaMu's liquidity even further towards doom. Could WaMu sell itself off before collapsing, thus getting something for shareholders? Or would potential buyers just wait for its collapse so as to wipe out shareholders and get WaMu extra cheap from a government seizure?
Well. The latter, as I found out. Though WaMu still had some liquidity left, the FDIC decided the jig was up, and not even waiting for the customary Friday, took over WaMu on Thursday Sep 25, immediately selling it to JP Morgan Chase. I can recall by Monday the Chase sign was being erected at my branch. By moving in and not waiting for an actual collapse, the FDIC did indeed protect all the customers like myself without even having to tap into the deposit insurance fund. The losers were the shareholders, and there were plenty of sob stories from all the widows and orphans who owned WaMu stock but who had failed to properly diversify their portfolios.
A fundamental and fatal problem for WaMu was that its Board of Directors was weak and incompetent and badly failed to protect shareholders, so this is a fine lesson in corporate governance. The long-time CEO Kerry Killinger seems not to have been malicious or crooked or a sociopath as one might expect in such a story. Seemed like a pretty nice and well-meaning guy. (Sure he divorced his first wife and remarried. But instead of a hot young trophy wife, he married a woman older than himself!) But he was Peter Principled for a bank the scale and complexity that WaMu became, and he was out of his depth.
Yet the one thing he did manage to do was control the ineffective Board, of which he was Chairman, to the detriment of WaMu shareholders -- a good argument that on Corporate Boards no one should be "Chairman and CEO". Finally in the 11th hour Killinger was fired and a turnaround artist was brought in. One gets the impression the new CEO could have saved the day if he'd had time, but it was just too late.
As is clear from this overlong review, this was a very educational book. I've never highlighted so many Kindle passages in a book before. It was a very interesting peak into the Global Financial Crises from the ground level. It all happened mostly because of banks like WaMu making dumb loans to unqualified people who'd soon enough default. And THAT happened for multiple reasons -- partly because the government was pressuring banks to make those loans to exactly those people per the "Community Lending" concept; partly because everyone became complacent in an era of unstoppable increases in home values; but also because such community lending turned out to be profitable for all concerned ... right up until it very much wasn't.
The core of WaMu's problem was in issuing an overly-complex type of home loan during the 2000s called an Option ARM, and promoting them to people who were poor credit risks and who were too unsophisticated to understand what they were getting themselves into. These Option ARMs became a priority for WaMu because they were more profitable than traditional fixed-rate mortgages. More profitable for WaMu when it still held the loans, more profitable to securitize and sell them to Wall Street, and more profitable for the world's bond investors when rolled into a securitized bond. More profitable for everyone ... until the borrowers began defaulting en masse.
The "option" part of such a loan meant that the customer could choose from various levels of monthly payment each month. Naturally many customers would choose the lowest amount they were allowed to pay -- but that would not even cover the interest charge, so the interest would add to the principle and the balance would only increase instead of decrease over time. In this way Option ARM's became reverse-amortization loans for many people: month after month, the loan balance would increase instead of decrease.
Then when the "adjustable rate" part of the ARM kicked in, the loan would reset, and the option of paying a very low monthly payment often ended. Combined with declining home prices starting about 2006, the result was that many low credit-rating borrowers found themselves with monthly payments they could not afford, and with home loans that were now increasingly underwater, without the benefit of increasing home equity to save their bacon. Walking away from the loan becomes a rational option. Meanwhile, companies such as WaMu found the usual drug of securitizing these crap loans and selling them to Fannie Mae, Freddy Mac, and Wall Street investors suddenly was disappearing as an option because of deteriorating conditions and because, as securitized bonds, these were often proving to be poor-performers. So WaMu was stuck with these loans it was creating as 2008 progressed.
Interestingly per the chronology, even as late as summer 2008 it was not clear there was any real disaster in store. Shareholders were angry that WaMu had just reported a quarterly loss and had just issued shares in a big capital-raise that diluted ownership; and had also cut the dividend almost to zero. A turnaround was needed but it wasn't obvious that anything fatal was going on.
Things came to a head during the two weeks in mid-September 2008. This was when things got scary. Starting on a Monday, Lehman collapsed and the government refused to rescue it. Then Merrill Lynch had to be taken over by Bank of America. AIG almost failed and was only rescued because the government had gotten spooked by what happened when it didn't rescue Lehman a few days before.
As all this unfolded a bank run commenced on WaMu.
At this part of the book, the narrative becomes quite a thriller! WaMu and its new CEO, multiple other big banks, and multiple regulators went into non-stop meetings and negotiations trying to sort out what to do even as Congress and the Bush Administration were dealing with the threat of broader economic collapse. With each passing day the bank run depleted WaMu's liquidity even further towards doom. Could WaMu sell itself off before collapsing, thus getting something for shareholders? Or would potential buyers just wait for its collapse so as to wipe out shareholders and get WaMu extra cheap from a government seizure?
Well. The latter, as I found out. Though WaMu still had some liquidity left, the FDIC decided the jig was up, and not even waiting for the customary Friday, took over WaMu on Thursday Sep 25, immediately selling it to JP Morgan Chase. I can recall by Monday the Chase sign was being erected at my branch. By moving in and not waiting for an actual collapse, the FDIC did indeed protect all the customers like myself without even having to tap into the deposit insurance fund. The losers were the shareholders, and there were plenty of sob stories from all the widows and orphans who owned WaMu stock but who had failed to properly diversify their portfolios.
A fundamental and fatal problem for WaMu was that its Board of Directors was weak and incompetent and badly failed to protect shareholders, so this is a fine lesson in corporate governance. The long-time CEO Kerry Killinger seems not to have been malicious or crooked or a sociopath as one might expect in such a story. Seemed like a pretty nice and well-meaning guy. (Sure he divorced his first wife and remarried. But instead of a hot young trophy wife, he married a woman older than himself!) But he was Peter Principled for a bank the scale and complexity that WaMu became, and he was out of his depth.
Yet the one thing he did manage to do was control the ineffective Board, of which he was Chairman, to the detriment of WaMu shareholders -- a good argument that on Corporate Boards no one should be "Chairman and CEO". Finally in the 11th hour Killinger was fired and a turnaround artist was brought in. One gets the impression the new CEO could have saved the day if he'd had time, but it was just too late.
As is clear from this overlong review, this was a very educational book. I've never highlighted so many Kindle passages in a book before. It was a very interesting peak into the Global Financial Crises from the ground level. It all happened mostly because of banks like WaMu making dumb loans to unqualified people who'd soon enough default. And THAT happened for multiple reasons -- partly because the government was pressuring banks to make those loans to exactly those people per the "Community Lending" concept; partly because everyone became complacent in an era of unstoppable increases in home values; but also because such community lending turned out to be profitable for all concerned ... right up until it very much wasn't.
April 6, 2018
This book is not for everyone, but was extremely interesting to me because for eight years I worked for one of Washington Mutual's subsidiaries. The decision of WaMu to sell off all ancillary businesses (I changed jobs, following the sold-off subsidiary under new ownership) was prelude to the giant series of missteps resulting in WaMu being the largest bank EVER to fail.
The book is a well-written narrative of the gradual shift of priorities of a highly regarded bank, and the discomfort with which many changes were met by senior executives who had reformed a struggling bank in the 1980s. The bank's ultimate downward spiral (ending in 2008) could simplistically be blamed entirely on greed (and it certainly played a major part), but it had a lot to do with the ascendancy to POWER and its addictive nature that takes over the rational side of the addict.
Having shared many an elevator ride with the bank's smiling, optimistic executives in those eight years I worked there, I had a nodding acquaintance with those leaders and completely respected the integrity of all. Kirsten Grind's depiction of the gradual change in the hierarchy is chilling. Many of the good people at the top left, heartsick . . . one by one. It's a very sad story.
The book is a well-written narrative of the gradual shift of priorities of a highly regarded bank, and the discomfort with which many changes were met by senior executives who had reformed a struggling bank in the 1980s. The bank's ultimate downward spiral (ending in 2008) could simplistically be blamed entirely on greed (and it certainly played a major part), but it had a lot to do with the ascendancy to POWER and its addictive nature that takes over the rational side of the addict.
Having shared many an elevator ride with the bank's smiling, optimistic executives in those eight years I worked there, I had a nodding acquaintance with those leaders and completely respected the integrity of all. Kirsten Grind's depiction of the gradual change in the hierarchy is chilling. Many of the good people at the top left, heartsick . . . one by one. It's a very sad story.
March 23, 2023
An interesting and absorbing story that was both easy to read and enjoyable thanks to Ms. Grind's writing style. The theme is the same as in all these large corporations that eventually crash and it's quite frankly very scary to the rank-and-file population. It's like a bubble gum that is blown up to the point it bursts, and the people who are blowing the bubbles all appear to be extreme narcissists, liers devoid of integrity, honour and avaricious beyond the bounds of respectability!
In this story, it all starts with agents and brokers competing to write up as many mortgages and home bonds as they can irrespective of the welfare of those who are relying on them for reliable and honest information and service. Management has their focus on the gross sales and no questions asked! Of course, they all participate in share and bonus schemes and don't really care how the sales are closed. Their comments to the press are always the same pumped up bulls--t and all seem to follow a similar theme.
Power, Greed and avarice are the drivers!
In this story, it all starts with agents and brokers competing to write up as many mortgages and home bonds as they can irrespective of the welfare of those who are relying on them for reliable and honest information and service. Management has their focus on the gross sales and no questions asked! Of course, they all participate in share and bonus schemes and don't really care how the sales are closed. Their comments to the press are always the same pumped up bulls--t and all seem to follow a similar theme.
Power, Greed and avarice are the drivers!
June 17, 2018
A thorough history of a preventable financial tragedy. In my opinion it's a classic case of a sleepy board of directors who had little to no working knowledge about operating a large savings bank. The board of WaMu should have reigned in a beguiling CEO long before the FDIC seized the failing institution. The makeup of the WaMu board was that of a typical Puget Sound oversight operation: cozy patricians from other Seattle-based companies who collected their director's fees and did nothing to stop the approaching wreck. (Full disclosure: for several decades we were Seattle-area residents who banked exclusively at WaMu until 2001. Several of our former homes were financed by the bank. Thankfully, we never were lured into buying the stock.)
September 26, 2022
This was a great history of Washington Mutual or WaMu as those in Seattle came to know it. Went really deep into the founding and culture of the company and how it changed or did not changed as grew to be one of the largest savings and loans in the US. Some controls and procedures that were well suited for the retail banking that formed the foundation of the company were not well suited and/or protected as WaMu grew rapidly throw continued acquisitions and led to gaps as they entered in the high risk option arm mortgages. I have always questions why WaMu was not saved during the financial crisis in 2008 when a number of it's competitors were, the author goes into this during the last few chapters and epilogue asking similar questions.
January 6, 2022
I enjoyed this book. I had never heard of Washington Mutual before. It was interesting to hear about the 2007-2009 financial crisis from another perspective since Bear Stearns and Lehman Brothers, via The Big Short, got most of the mainstream press. The story is similar to The Big Short; however, it is told mostly from the perspectives of Washington Mutual's former leadership rather than from the perspective of the short sellers, with perspectives from the regulators and shareholders woven through the book. If you like stories and you enjoy learning about finance, this would be a great book for you.
December 20, 2016
Good book. I always love to hear the inside stories of these colossal business failures. After reading the book it seems pretty obvious to me that there is an east coast bias when it comes to banking. You can't help but feel like Paulson was taking care of his buddies at AIG, Citi, and Meryl but let WAMU eat it. I hate when the government gets to pick the winners and the losers. Either let them all fail or bail them all out. What it really proves to me is that any institution could fail and the economy recover its just that some CEOs are better at selling the opposite idea.
April 11, 2021
An interesting look into the failure of Washington Mutual. The story focuses solely on Washington Mutual and does not venture into any depth on the similarly situated institutions (e.g. Bear Sterns, Countrywide, Lehman). While this provides a concise approach to the WaMu story, some additional context around the finanicial crisis could have been useful to a reader without a preexisting knowledge base.
August 13, 2018
Working on bank resolution plans got me interested in actual bank failures of larger banks and how those events influence FDIC policy. But even if you don’t work in this space, this is a well-told Tale of the personalities and model that lead to its enormous growth and the human failings that lead to its downfall.
June 27, 2022
Very dry. More entertaining in the first half of the book where they’re describing how the bank grew. Lots of numbers and facts and lots of names.
I listened-to it on audio which is the only way I would be able to get through it.
A story of human greed: banks, Wall Street,
FDIC, OST, Govt, etc.
I listened-to it on audio which is the only way I would be able to get through it.
A story of human greed: banks, Wall Street,
FDIC, OST, Govt, etc.
April 23, 2019
A fantastic account of what led to Washington Mutual failure and a great illustration of the 2008 financial crises.
Full of first-hand accounts, fantastically written, and engaging from start to finish.
Full of first-hand accounts, fantastically written, and engaging from start to finish.
April 3, 2021
Great book! A little bit slow at first as it lays the foundation, but well worth it by the end. I recommend it to anyone looking to learning more about the Financial Crisis or just banking in general.
November 8, 2021
I absolutely loved this book. I didn't know anything about what happened with Washington Mutual really....I knew about Lehman and others, but WaMu not so much. Grind's account is well researched, organized, and compelling. I may read this again sometime. Definitely recommend.
May 15, 2022
good at the start but
Starts off as an interesting and well written story. Interesting characters. Drags toward the middle and end. Too much detail on how regulators dealt or didn’t deal with the problems.
Starts off as an interesting and well written story. Interesting characters. Drags toward the middle and end. Too much detail on how regulators dealt or didn’t deal with the problems.
December 31, 2022
Listened to the audio book. This was really really godo and a great history on Wamu/thrift banks. You can see at least the policy rationale behind the mortgage market rather than profits. I learned a lot from lsitening to the book.
April 4, 2018
It is a fascinating insight into the rise and fall of a financial institution. The first half moved at a past pace, and the last half dragged just as much. Worth a read, nonetheless.
June 13, 2018
Great book about another casualty of the last financial crisis.
March 26, 2019
I found this book enlightening as a case study on building culture and what can break good team culture.
September 16, 2019
This was great. Very accessible history of the bank collapse.
December 22, 2019
Pretty solid history of the collapse of Washington Mutual.
Good overview of how culture matters.
Would recommend for all finance and banking students.
Good overview of how culture matters.
Would recommend for all finance and banking students.
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