WaMu: The Power of Yes
By This is a pretty remarkable story about Washington Mutual, though most of its particulars — amphetamine-snorting mortgage supervisors aside — won’t be news to anyone who’s ever listened to “The Giant Pool of Money” episode of This American Life.
During Mr. [Kerry] Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.
WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.
“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”
Actually, the Wild West analogy, though alluring, is a false analogy. The actual “Wild West” was possible only in the absence of effective civic authority and the inability/unwillingness of federal and territorial officials to restrain and punish the avarice of those who intruded on the landscape. What happened in the financial world over the past fifteen years was more akin to the collapse of civilization following a zombie infestation or the oft-dreaded — on this blog at least — communion of monkeys and robots.
On a somewhat related note, it’s worth mentioning a point that the Times article doesn’t include, even though it compares WaMu to a “sweatshop” — in addition to pushing through bad loans and treating their employees the bank also refused overtime pay to thousands of its employees. Here, the company’s sins were not unique. Following the Bush-approved 2004 revisions to the Fair Labor Standards Act, mortgage lenders across the country were able to reclassify their sales forces as “administrative” workers who were no longer eligible for overtime. Obviously, changes to federal labor laws played at best a tertiary role in the financial crisis, but it’s an issue that never receives mention in the press coverage. It’s difficult to muster sympathy for the brokers who got rich off the scheme, but the fact remains that bad public policy allowed institutions like Washington Mutual and Countrywide to bugger the very employees who were helping them wreck the economy.