'Greedy' Washington Mutual Channeled Sir Mix-A-Lot

All the while, the bank was selling its toxic loans into the market: not only were some marred by fraudulent information, but others were ones that the bank believed would likely go bad. Still, the company did not alert the securities' buyers about the looming problems. In fact, the bank even boosted compensation for its loan officers who sold higher-risk loans: the faster the speed and the greater the volume, the bigger the payday a loan officer would earn for the sales.

"The recent financial crisis was not a natural disaster; it was a man-made economic assault. People did it," Levin said at a hearing Tuesday. "Extreme greed was the driving force and it will happen again unless we change the rules."

The panel's hearing on Tuesday featured a string of former Washington Mutual executives, including former CEO Kerry Killinger, who walked away from the company with nearly $100 million in compensation, as well as former president Steve Rotella.

WaMu's Home Loan Unit: 'Worst Managed Business'

In one internal e-mail from 2007, Rotella said Washington Mutual's home loan unit was "the worst managed business" he had seen in his career -- "that is, until we got below the hood of" the bank's subprime lender Long Beach Mortgage Corp.

James Vanasek, who served as chief risk officer at Washington Mutual from 2004 to 2005, told senators at the hearing that he sounded the warning alarms about the company's risky lending practices years before its 2008 collapse. Back in 2004, the company promoted its efforts to offer loans to all consumers with an ad campaign geared around the motto, "The Power of Yes."

But Vanasek noted, "'The power of yes' absolutely needed to be balanced by the wisdom of no."

Vanasek's warnings, he said, went unheeded by his bosses.

But Killinger, the former CEO, said the company's seizure was unnecessary and unfair.

"I believe Washington Mutual should not have been seized and sold for a bargain price," Killinger said in his prepared testimony for the hearing. "There is no question that the company suffered from rising loan losses, but the company was working its way through the crisis by reducing operating costs, raising over $10 billion of additional capital, and setting aside substantial loan loss reserves."

"I believe that Washington Mutual's seizure was unnecessary and the company should have been given a chance to work its way through the crisis. I also believe it was unfair that Washington Mutual was not given the benefits extended to and actions taken on behalf of other financial services companies within days of the company's seizure," said Killinger, citing government economic rescue efforts such as Treasury's $700 billion Wall Street bailout, the Federal Reserve's asset-purchasing program, and the FDIC's debt guarantees and insurance limit increase.

On Friday Levin's panel will turn its focus to the regulators' actions at a hearing featuring FDIC chief Sheila Bair.

In a letter to the inspectors general for the FDIC and Treasury obtained by ABC News, Bair vowed "to move quickly to address the lessons learned from the current financial crisis and to strengthen its overall financial regulatory framework."

In all the Senate panel has planned four hearings to examine the financial crisis. Levin said Monday that the subcommittee will not decide until after the hearings whether to formerly refer Washington Mutual to the Department of Justice for any possible criminal prosecution.

-- This embed didnt make it to copy for story id = 10361663. -- This embed didnt make it to copy for story id = 10361663. -- This embed didnt make it to copy for story id = 10361663. -- This embed didnt make it to copy for story id = 10361663. -- This embed didnt make it to copy for story id = 10361663.
Page
  • 1
  • |
  • 2
Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...