Washington Mutual leaders' bad bet led to bank's seizure

KERRY Killinger began his testimony to the Senate yesterday by saying, "I accept responsibility" for the failure of Washington Mutual. The former CEO then discounted his apology by saying the Seattle bank might have been saved if it had received its fair share of federal rescue.

Perhaps so. During the bank panic of September 2008, Treasury Secretary Henry Paulson was deep in phone calls to his old associates on Wall Street — calls in which Killinger, as he complained Tuesday, was not included.

In 2008, at a time when banks everywhere were gasping for air, the federal oxygen was administered selectively — to Chase, Citibank, Bank of America, et al., but not WaMu. The FDIC let the "Friend of the Family" turn blue in the face, seized it, held it for 30 seconds, and signed it over to J.P. Morgan Chase.

Killinger implied that WaMu could have survived, and "was seized in an unnecessary manner."

Maybe it was. But in the chaos, who was to define what was necessary? The decision was made by a handful of federal employees. None lived here. None wanted to use public credit to save a bank in Seattle.

None of this takes away the responsibility that rests on the shoulders of WaMu management.

Yesterday, the Homeland Security and Governmental Affairs Committee heard from several former WaMu executives. With each, the view of responsibility shifted.

Steven Rotella, chief operating officer from 2005 to 2008, described what a mess the bank was in when he arrived, and how he acted boldly to fix it. James Vanasek, chief risk officer from 2004 to 2005, reminded the senators that the disaster happened after he left.

Killinger was there the whole time. He, too, had an excuse: "I didn't know there was going to be a 40 percent decline in housing prices."

Indeed. But no bank made a bigger bet that house prices would never come down. It was a bad bet, and people will long remember those who made it.