Washington Mutual: Fall Of The Yes Men

New York Times:

As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers'. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Read the whole story: New York Times

Comments

[BSERIUS]

05:44 PM on 12/29/2008

WaMu like a lot of other banks put themselves in a perverse affirmative action scheme that they were forced to lend to everyone regardless of qualifications, at the risk of ACORN and their Community agitators screaming racism

[DiogenesOfAlaska]

06:27 AM on 12/30/2008

BSerius, please clarify:

did they '...put themselves...'

or

'...they were forced...'?

And don't scream pedantry too fast.

Understanding how this mess came to pass does matter. You can't just scapegoat it away. No, you can't. Impossible. Of course bad loan decisions were made. But before you attribute this to affirmative action, you have a long way to go and a lot of explaining to do. (You won't succeed, because this argument does not distinguish between the various phases of the securitization and subprime markets. So don't even try, it's a waste of your precious time).

At this level of precision, your point is not more convincing than the idea that too many bankers were compensated 'regardless of qualifications' - and who would have screamed if bankers pay had to actually first be demonstrated to be well-grounded in sustainable financial performance before it can be doled out?

Here's my challenge for you: for all you know, the crisis was (even before the bailout) a case of affirmative action in favour of the poor and disadvantaged bankers.

Explain to me why it was not, based on your logic of events.

[Artemis34]

12:46 AM on 01/01/2009

Exactly. $100M to Kerry K. Killinger, chief executive of Washington Mutual, for wrecking the company, is a kind of Executive Welfare.

[Artemis34]

12:37 AM on 01/01/2009

http://www.prospect.org//cs/articles;jsessionid=aOkdtfZvpCJfLGY72Z?article=did_liberals_cause_the_subprime_crisis

Did Liberals Cause the Sub-Prime Crisis?

The short answer is "No!"

BTW, I worked as an accountant in a Savings & Loan when the Community Reinvestment Act, which requires banks to lend throughout the communities they serve went into force. At that time, the only ones getting loans they didn't deserve were the white male cronies of the bankers.

There are no laws that require any financial institution to make bad loans!

[DiogenesOfAlaska]

05:03 PM on 12/29/2008

The lasting damage that was done is in the massive distortion of principles of sound business practice and the way it is communicated within firms.

At the deeper level, the problem with 'as long as the music plays, you have to keep on dancing' is not that it leads to failure of the firm - that's clear and it's good - good riddance, that is.

The problem is that it represents the total failure of compass with respect to how sound business is even possible.

If it becomes acceptable to claim that taking deadly risks is necessary, then people who listen to this and believe it have seriously flawed thinking as their problem. And it's far from clear where repair is coming from.

[MadAppraiser]

04:17 PM on 12/29/2008

One day a realtor came into the appraisal section of the saving and loan that I worked laughing and said, “We were wondering when a loan would not come in!!! In this market everything we have submitted to any of the mortgage lenders no matter how ridiculous has been accepted, but you cut-off my legs with this appraisal! It got to the point that we would just choose any value for a sale with pretty good confidence that it would close. Your appraisal was good; you supported your value in the report. I just wish it were not my deal! You gave the realtors in my office a real wake-up call we needed! Good Luck, you are going to need it!”

This incident occurred during the 1980’s saving and loan debacle before the inception of appraisal licenses, state/federal government regulations, and Fannie Mae/Freddie Mac multitude of fancy new appraisal forms. In-house staff appraisers were completing appraisals longhand during this period. DEVA VU!!!

[LHoney]

01:56 PM on 12/29/2008

Maybe I'm stupid, but the part of all of this that I am missing is: Who benefited from this?? Why was this encouraged? Who made money on this and why? I'm still very confused... and why do they call these failures? They were working very hard to fail. Sounds like a success to me!

[Erdgeist]

11:44 PM on 12/28/2008

And the guy who made predatory lending possible, America's President, GWB!

"Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative."

URL: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

[themodernleader]

06:36 PM on 12/28/2008

This story of greed and negligence from the CEO that corrupted line and staff and finally destroyed the organization is well documented by two top reporters by a news organization beginning to regain its sense of public purpose and national responsibility.
Organizational building and destroying repertoires of adsministration always begin with the CEO. However, it should not be lost that the directors of the Board of Washington Mutual are responsible. The Board is the control mechanism of any organization. As the CEO and key administrators should be indicted, the members of the board of Directors should be interviewed for any signs of collusion.
Also, we are finding that the President of the highest office of the land is emulated by all leaders of the land.The CEO of our imperiled country is the main culprit. It was President Bush who's secretiveness, venalty, arrogance, incompetence and treason that was encouraged and emulated by CEOs of organizations throughout our broken Republic. Now leaders have been weakened and sabotaged as subordinates hesitate to follow for fear of being led further into a bottomless hole.

[GALLERY84]

04:49 PM on 12/28/2008

GALLERY84 SAYS THIS IS ALL PART OF ZERO REGULATION

BUSH THOUGHT HE WAS BEING ALL BIZ FREINDLY BUT YOU CANT GIVE THE FOX THE KEYS TO THE CHICKEN COUP

[spinns17]

04:42 PM on 12/28/2008

i still like to kknow why were not going after peoples lawyers and real estate people ,that let this happen.whats there part in these scams

[Bugweed]

04:18 PM on 12/28/2008

I'm supposed to feel real bad about people who were "mislead" by the real estate agents/loan brokers who engineered this housing debacle? Did anyone ever think? Does the term "greed" only apply to others? What about the Mariachi singer who claims a 6 figure income that he can't verify. What happens to his lies? Is he a "victim" now because his house is getting re-popped? Who signed his loan application, the tooth fairy? If I remember correctly, signing a document that says one thing (I make 100,000 dollars) that you know isn't true, is a form of fraud and when you get two or more together to perpetrate such a scheme, that's a conspiracy. So who should go to jail? The greedy would be homeowner that can't miss on this gold mine, the real estate agent who can't miss on the commission that should never have been paid in the first place, or the loan broker who engineers the whole thing? Or should every one of them frog walk into court? Or do we just bail them out with the low lifes running the banks.

[mortrefuge]

10:47 PM on 12/28/2008

Or is it the Wall Street deal makers who demanded as many loans as they could get so they could package them into derivatives that they could sell many times over? The banks, mortgage banks and mortgage brokers would never have made these loans if they didn't have investors who weren't willing to buy them. There was just too much money to be made buying and selling these "risk free" securities.

[leftLibertarian]

03:52 PM on 12/28/2008

Sounds like massive fraud. Where are the criminal charges?

[CosmicChaos]

03:25 PM on 12/28/2008

This is the main reason our Economy is in the toilet.

My grandfather used to be a Loan Officer. He did extensive background checks on the loan applicants to make sure they could afford the Loan.

A risky rule of thumb for giving out loans is that the month payments for a house loan is 30% of your total income. To play it safe, it is better for it to be under 20% of your total income at the time of applying for the loan. This percentage should INCLUDE taxes and insurance on the house. Car loans should break down to less than 10% of your total income.

If you earn $50,000 per year, then your monthly house payment + taxes + insurance should be less than $1250 a month and car + insurance should be less than $416 a month. Basically a $150,000 house would be the max cap of a potential house for a person making $50,000.

The lower under these percentages you are the better off you are in financial viability.

What happens when you go over these amounts is it is almost impossible to not go Bankrupt. Therefor the loans mentioned above created on false income levels and assets were guarenteed to fail.

The above concepts are for people with perfect credit. I wouldn't recommend someone with a credit score under 600 even bothering to get a loan, because the terms you can get make a loan unaffordable for the average person in the long run.

[mortrefuge]

10:51 PM on 12/28/2008

The reason for the ratio recommendation is that loans are made based on the gross income of the applicants. It doesn't take into account the actual take home pay of the borrower. Let's say the borrower's salary is $4200 a month. They may only take home $3000 a month or less after taxes and deductions. That's also the reason that the mortgage interest deduction is so crucial for home owners.

[munki]

02:38 PM on 12/28/2008

If it is too good to be true, it is too good to be true... best haunch!
When WAMU offered teaser rates...
Realizing... someone has to pay...
Usually is the borrower... think twice!
Nothing is free...