Today’s Financial Times reports that “Washington Mutual ramped up sales of high-risk mortgages to investors in the years before its collapse even though internal reports showed many of the loans were tainted by fraud…” (WaMu risky loans ‘riddled’ with fraud, April 13, 2010).
The exhibits released today by the United States Senate’s Permanent Subcommittee on Investigations (Wall Street and the Financial Crisis: The Role of High Risk Home Loans) is comprised of exactly 666 pages. So clearly, someone on the Committee has a sense of humor.
A sampling of the 666 page document reveals the following…
As early as 2003, a report to Washington Mutual’s board of directors authored by the Federal Deposit Insurance Corporation and the Department of Financial Institutions raised serious issues with WaMu’s affiliate Long Beach Mortgage Company. The heavily redacted report stated that “the culture, practices, and systems at Long Beach Mortgage Company are inconsistent with the lending activity of the bank…40% (109 of 271) of loans reviewed were considered unacceptable due to one or more critical errors.”
Two years later, in 2005, another internal WaMu memorandum noted that “…42% of the loans reviewed contained suspect activity or fraud, virtually all of it attributable to some sort of employee malfeasance…”
A further two years on, and yet another report – this time, a 2007 internal review addressed to the bank’s top management commented that “…71% of the loan sample contained information or discrepancies that raised the suspicion of fraud…”
It shouldn’t take a highly talented, bonus-bloated banker four years to figure out that there may have been a problem. During the period from 2003 to 2008, WaMu’s former chief executive, Kerry Killinger, received $103m in compensation.
Perhaps, as the numeration of today’s Senate report implies, you shouldn’t borrow money from the Devil, because after all, he’ll vanish in the end.
From The Grateful Dead’s Friend of the Devil…
Ran into the devil, babe, he loaned me twenty bills
I spent the night in Utah in a cave up in the hills.
Set out runnin’ but I take my time, a friend of the devil is a friend of mine,
If I get home before daylight, I just might get some sleep tonight.
I ran down to the levee but the devil caught me there
He took my twenty dollar bill and vanished in the air.