Remember that Sir Mix-A-Lot song "Baby Got Back"? The one with the line, "I like big butts and I cannot lie…"?
In an incident that critics view as emblematic of rampant greed at Washington Mutual, a remix of that song -- with the lyrics changed to "I like big bucks and I cannot lie…" -- was performed at one of the company's lavish annual retreats years before it became the largest bank to fail in U.S. history.
Every year the bank would hold huge parties in exotic locales to celebrate its mortgage originators who created the most loans -- the same high-risk loans that would ultimately prove to be the company's undoing.
At the 2006 retreat in Kauai, a group of employees performed a "tribute" to the event's honorees. To the tune of the 1992 hit "Baby Got Back," the employees came out on stage and started rapping, "I like big bucks and I cannot lie / You mortgage brothers can't deny / That when the dough roles in like you're printin' your own cash / And you gotta make a splash / You just spends/ Like it never ends / Cuz you gotta have that big new Benz…"
At a retreat in Maui the year before, NBA Hall-of-Famer Magic Johnson was the emcee. "President's Club," Johnson told the gathering. "It's kind of like the NBA All-Star game. Everyone there is an All-Star."
But on Sept. 25, 2008, collapsing under the weight of these now-toxic loans, Washington Mutual -- with over $300 billion in assets, $188 billion in deposits, and 43,000 employees – was seized by federal regulators and sold to JP Morgan Chase for $1.9 billion in the largest bank collapse in the country's history.
For the past year the Senate Permanent Subcommittee on Investigations, led by chairman Carl Levin and ranking member Tom Coburn, has been examining Washington Mutual's collapse as part of a probe into the financial crisis.
What they have found is widespread fraud. The investigators have said that Washington Mutual engaged in fraudulent lending practices for years leading up to its demise.
The bank's first mistake, investigators found, was a conscious decision to make risky mortgage loans -- a high-risk, high-reward strategy that ultimately backfired. The bank then packaged those mortgage loans together and sold them to investors, a move that ended up infecting the financial system with a stream of toxic assets.
But perhaps most alarming, Senate investigators discovered, was a culture of fraud that pervaded the bank's lending practices and continued unchecked despite the company's own probes. One internal probe in 2005 -- only conducted after three years of reports about fraud -- found that two California offices had loan fraud rates of 58 percent and 83 percent. However, "no steps were taken to address the problems," investigators said. The fraud included bank employees manufacturing documents to support loans; third-party mortgage brokers bringing in loans with fraudulent information; and other loans where the bank's systems indicated that a borrower's information was false but the loan was processed anyway.