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Sen. Levin's committee poised to assess blame for WaMu failure beginning Tuesday

Washington Mutual, Inc.

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Sen. Carl Levin (D-Mich.) and his Senate Permanent Committee on Investigations is ready to bring the hammer to failed thrift Washington Mutual beginning on Tuesday.

Washington Mutual, or WaMu, was the largest thrift failure in the United States. Thoroughly polluted with toxic loans made to bad credit risks and bogus securitization, WaMu was taken over by the government and sold to J.P. Morgan Chase & Co. in September 2008. It had $300 billion in assets.

Now, Levin wants to find out whom to blame for its failure.

Tuesday kicks off four hearings on the WaMu debacle, and Levin's committee has examined millions of pages of documents and is ready to present what looks like millions of exhibits and internal e-mails.

“Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river,” Levin said in a statement. “Using a toxic mix of high risk lending, lax controls and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad. Examining how Washington Mutual operated, and what its insiders were saying to each other, begins to open a window into the troubling mortgage lending and securitization practices that took our economy over a cliff. As the debate on financial reform begins, it is critical to acknowledge that the financial crisis was not a natural disaster, it was a man-made economic assault. Our hearings on the financial crisis will help provide a public record of what went wrong, who should be held accountable, and the ongoing need to protect Main Street from the excesses of Wall Street.”

Here is a sample of one of the internal e-mails from WaMu that Levin's committee has obtained:

"Short story is this is not good. ... Large potential risk from what appears to be a recent increase in repurchase requests .... We are all rapidly losing credibility as a management team."

- David Schneider, head of WaMu's home loans division, Dec. 2006.

Levin's committee will probe WaMu's "teaser rate" mortgages, which could eventually end in negative amortization, i.e., the home loan actually growing in size as the years went along, naturally leading to defaults.

Levin will hit WaMu on six key points:

-- High-risk lending strategy.

-- Shoddy lending practices.

-- Steering borrowers to high-risk loans.

-- Polluting the financial system.

-- Securitizing delinquency-prone and fraudulent loans.

-- Destructive executive compensation.

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By Frank Ahrens  |  April 12, 2010; 6:04 PM ET
 | Tags: Carl Levin, Financial crisis, JPMorgan Chase, Natural disaster, United States, United States Senate, Wall Street, Washington Mutual  
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Comments

I'll be very surprised if Kerry Killinger, former head of WaMu, doesn't take the 5th. He came out of the bank's collapse (the largest in US history) with $100 million. That's in the running with Joe Cassano (head of AIG-FP, $350 mill) and Richard Fuld (Lehman Brothers, $480 mill). I hope I live to see all three of these guys serving 100+ year jail sentences, like their fellow super-criminal Bernie Madoff.

Posted by: hairguy01 | April 12, 2010 9:36 PM | Report abuse

In my city, if I help a fellow stick up a convenience store for $500 - all involved go to jail. It's been over a year since WaMu tanked, some depositors lost their savings, a LOT of investors and stockholders lost big time, the taxpayers get to pay to hold the bag. NO ONE (exectutive team, accountants, auditors, appraisers) has been officially found to be responsible, although the coming train wreck was obvious for months before they were acquired.

I've been patiently waiting for the felons to be identified (by name), be indited, get a fair trial, and if found guilty, have their assets confiscated and do some serious jail time.

That's what required to stop a repeat of the financial folly.

Posted by: shadowmagician | April 12, 2010 10:10 PM | Report abuse

They don't want to focus on the real problem. The goal is victimize and then control. Assess GM and you will find fraud. The executives are being comped. They wrecked the thing lock stock and barrel. They will reward failure if it's the failure that fits their warped world view. AIG gets treated as royalty and WaMu gets the treatment. The scum gets to decide and the market gets trashed. What has value has merit. The losers are winners. Whatever.

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