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Originally published April 13, 2010 at 10:00 PM | Page modified April 14, 2010 at 12:55 PM

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Danny Westneat

WaMu's new line: 'Who knew?'

We already knew that with the great financial meltdown of 2008, no one is to blame for anything.

Seattle Times staff columnist

We already knew that with the great financial meltdown of 2008, no one is to blame for anything.

Tuesday at the congressional grilling of the Washington Mutual brass on how they ran a respected, 119-year-old bank into the ground, another defense was tried: No one knows anything.

Former CEO Kerry Killinger said his bank's failure wasn't his fault (it was the economy and also the government.) But for a guy who ran the joint for 18 years, he seemed not all that clued in about what his company actually did.

Much of the questioning from a panel of U.S. senators was about WaMu's now well-known history of bundling up crappy, subprime loans, sprinkling them with fairy dust and selling them as investments on Wall Street.

The U.S. Senate Permanent Subcommittee on Investigations said it had evidence that WaMu rushed to unload some of these loans precisely because the bank knew they were rotten.

When asked about this, Killinger said he couldn't recall (they always say that). But he also said something that floored me: He never knew much about WaMu's business of securitizing subprime loans for sale on Wall Street.

Even though WaMu did it to the tune of $77 billion worth from 2000 to 2007.

"I was just simply not involved in any of those," Killinger shrugged.

They were only the fuel for the fire that burned down the U.S. economy!

OK, well, moving on then. Killinger was asked about how even people inside WaMu considered the subprime securities coming out of WaMu's Long Beach Mortgage to be "the worst paper in the market."

Blank look. News to him.

How about how WaMu loan officers in various offices were involved in fraud, cutting and pasting false names on borrowers' bank statements or fabricating assets, just to move more subprime loan product?

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Can't remember the specifics, said the guy who was in charge.

On it went, nearly two hours of I-have-no-knowledge or I-can't-recall.

Earlier a lower-ranking risk officer at the bank testified he'd come to Killinger in 2004 and made an "impassioned argument" to take a stand against rampant fraud in the loan industry.

"Blow the whistle," the guy said he urged Killinger. "Say we at Washington Mutual will not participate any further."

A senator asked Killinger about this. You're the CEO, the senator said. This is your bank. Didn't someone telling you there were serious fraud problems send chills up your spine?

Eh. He answered blandly that he of course tried to fix any problems. But chills? His demeanor was more Alfred E. Neuman: What, me worry?

Have I mentioned what they paid Killinger? He cashed out $25 million in 2008, working only eight months before being fired.

I realize Killinger may have been only pretending to be clueless, because he still has to worry the feds may go after him on potential criminal charges. That said, he was very convincing.

It's the source of one of the greatest misconceptions of the economic catastrophe, argues a new book called "The Big Short" by Michael Lewis. Congress, prosecutors, the public — everyone wants a pound of flesh from the evil CEOs. The premise is that the CEOs must have known what they were doing and, so, are the ones to blame.

But generally they didn't know what they were doing, argues Lewis, who is in Seattle this week to read from his book. They couldn't see reality through the greed any more than you and me. That's why firms like WaMu failed.

"Seemingly so shrewd and self-interested," Lewis writes, "[the big firms] had somehow become the dumb money. The people who ran them did not understand their own businesses, and their regulators obviously knew even less."

Evil or dumb? Watching Killinger testify Tuesday it didn't seem like much of a choice.

At least with evil you know how to react. But as Lewis describes, what happened wasn't that Hollywood. People went along thinking there was some grown-up in charge of the financial system until suddenly they saw there wasn't.

Now no one knows quite what to do. Dumb is paralyzing.

Plus the dumb money got rich anyway. That part really smarts.

Danny Westneat's column appears Wednesday and Sunday. Reach him at 206-464-2086 or dwestneat@seattletimes.com.

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About Danny Westneat

Danny Westneat takes an opinionated look at the Puget Sound region's news, people and politics. Send tips or comments to dwestneat@seattletimes.com. His column runs Wednesday and Sunday.
dwestneat@seattletimes.com | 206-464-2086

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