‘The Lost Bank’ shows how WaMu’s failure hurt the powerless
The demise of Washington Mutual Bank in September 2008 resounded across the U.S. and internationally, but it was overshadowed by the catastrophic failure of Lehman Bros.
At any other time WaMu’s collapse would have been big news. But as Sheila Bair, former head of the Federal Deposit Insurance Corp., recalls: “It was below the fold, if it was even on the front page.... It was the largest bank failure in history, but it was really a blip given everything else that was going on.”
In a new book from Simon & Schuster, “The Lost Bank: The Story of Washington Mutual — The Biggest Bank Failure in American History,” author Kirsten Grind, a Wall Street Journal reporter, deftly restores the “lost bank” to its rightful place in the annals of financial disasters.
And the overarching themes are familiar: The bank wrote billions of dollars of bad mortgages, which blew up in the financial crisis and caused it to fail.
At a time of hyperquick publishing, taking three years to write “The Lost Bank” seems leisurely. But although it lacks the timeliness and scope of Andrew Ross Sorkin’s prodigious “Too Big to Fail,” written while the crisis was still raging, it also avoids some of that book’s flaws.
If this were just another account with a portentous description of a chief executive’s gravel driveway or accounts of his grandiose thoughts at critical moments, it would not be worth reading. But the clarity and humility of the writing is refreshing.
Although Grind does wrongly define a synthetic collateralized debt obligation in “The Lost Bank,” what she gets right is the human element that is absent from other accounts of the crisis. As ever, there are plenty of powerful men and women playing pathetic power games — but a lot of powerless people too.
The story starts with WaMu’s recovery from a previous near-death experience in the 1980s when Lou Pepper restores the Seattle business to health. With his homely mottoes — “honesty, integrity and fairness” — Pepper is the antithesis of what came after.
Pepper retires, handing over the business to his protege Kerry Killinger, who builds it into a behemoth and then destroys it.
With a new motto, “The power of yes,” WaMu sets up as a loan factory. You have no documentation? Don’t worry about it, we’ll trust you. You’re dead? That might be an impediment, but....
In Los Angeles, a borrower named Jose Flores applies for a mortgage, but unfortunately a credit check reveals he is dead. Told that WaMu needs some evidence of his existence, the borrower submits some — “a sheet of notebook paper on which he scrawled: ‘I don’t understand why the Credit Bureau thinks I’m dead. I’m right here. Jose Flores.’”
Killinger, meanwhile, ignores warnings, gets divorced and acquires a new wife, a small dog and an appreciation for private jets.
Grind interviews an immigrant family who succeeded in the American dream but placed their savings in WaMu stock, which evaporated in 2008 when the bank failed and JPMorgan acquired it in a fire sale.
Then there is a 92-year-old woman phoning WaMu in tears, in the year before the end, because she lives off the dividend on the stock and it has just been canceled.
And there is a family who sinks its savings into a down payment on a mortgage they do not understand and ultimately cannot pay. They end up selling the house in a fire sale of their own.
“Always remember when you buy stocks, you’re taking a risk,” says Jamie Dimon, chief executive of JPMorgan and inheritor of the wreckage of WaMu.
He is right, and they did not remember. But if there is a book that makes you pity the idiocy and greed of the small investor or homeowner and condemn the idiocy and greed of the bankers, it is this one.
Braithwaite is the U.S. banking editor of the Financial Times of London, in which this review first appeared.
