Barely 10 pages into the first chapter of Kirsten Grind's The Lost Bank comes the first of many elaborate musical interludes. The year is 1987, the theme is a modified Wizard of Oz, and the occasion is the 63rd birthday of the bank’s universally beloved, unbelievably benevolent and comprehensively folksy CEO Lou Pepper.
"You'll want to go to the land of corporate values! All you have to do is follow the WaMu road!" Glenda the WaMu Witch cheerfully tells the anxious customer sales representative “Dorothy,” pointing the employee in Lou’s direction. A sea of (Wa)munchkins donning paper masks bearing Lou’s face emerge from the woodwork to join in a rousing chorus of “Louie Louie.”
By ’87 Lou had two years to make up his mind whom to pick as his chosen successor, and he’d narrowed the candidates down to two. And—spoiler alert!—He picked the wrong guy. But there are so many irresistible elaborately choreographed song-and-dance routines on the WaMu road to Just Big Enough To Fail! There's the brand rally anthem I think of as “(Wam)Oops I Did It Again" (I made you believe we're more than a bank …), performed by a guy in a blond wig. There’s the brand rally at which a much younger female employee leaps onto the stage to grind with Pepper’s protégé Kerry Killinger during a performance of “Taking Care of Business” while another woman in the crowd faints. And the obligatory Sir Mix-a-Lot-inspired ode to “big bucks” performed by a group of elite mortgage sales staffers during the very last gasp of the bull run at the beginning of 2006:
You mortgage brothers can't deny
that when the dough rolls 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
For the vast preponderance of its perpetrators, the financial crisis seems to be something considerably less profound than a Katy Perry video. And while former Puget Sound Business Journal reporter Kirsten Grind, despite being billed by her publishers as the author behind the "first detailed stories about Washington Mutual," is not even responsible for the first detailed accounts of Washington Mutual's in-house Sir Mix-A-Lot cover band’s performance—that, along with about 90 percent of the substantive material on WaMu's demise in the book, was compiled by Sen. Carl Levin's permanent subcommittee on investigations, whose excursions down the WaMu road yielded a much more lucid (also: free) account of WaMu's collapse in 2011—she is an admirably thorough chronicler of the relentless obnoxiousness editors call “color.”
There are exhaustive discussions of Killinger’s evolving attitudes about corporate jet travel; details of the company’s ever-more-rock operatic culture-building initiatives; and what passes for “perspective” from employees of a company that hosted a “revival” in Atlanta featuring a white-suited “evangelist” who punctuated every line with “WaMu-lujah!” and a gospel choir performing a hymn to the bank’s official slogan (“The Power of Yes”).
“When the music stops, from a liquidity perspective, things will get complicated,” former Citigroup CEO Chuck Prince famously put it in August 2007. “But as long as the music is playing, you’ve got to get up and dance.” But at WaMu, when the music stopped, the sales team just got working on a new song: The star of the mortgage wholesale division composed a rousing finale score commemorating liquidity’s death to be sung to the tune of “American Pie":
I can't remember if I cried
When I read about poor Countrywide …
Which brings us to the defining disingenuousness that seems to have been this bank’s truly exceptional trait: It seems to have contaminated just about every document the institution ever touched, and Grind’s toxicology report is no exception. There is an exceptional story here, but not because it happens to be the “biggest bank failure” on the historical record, as her title reminds us—that distinction rightfully belongs to Citigroup, as the regulator widely perceived by WaMu loyalists to be one of the bank’s two primary malefactors, FDIC chairman Sheila Bair, would gladly concede. But Citi was, as Kerry Killinger put it in his comically un-contrite testimony before Levin’s committee, "too clubby to fail."
What does seem to have been truly extraordinary about WaMu was the sheer brazenness of the pyramid scheme at the heart of its business model. The mortgage division did everything within its power not to originate traditional fixed-rate mortgages—pretty much the only non-predatory home loans on the market—preferring the fatter profits that came with catering to house-flippers, professional con artists, and naive first-time buyers that other lenders (even in 2004-05!) had turned away. In 2003, after an internal audit of 4,000 loans found only 950 qualified to securitize, the legal division temporarily shut down the whole business. By the time it reopened, the market had gotten so hot that standards sunk still lower. Year after year, even as housing prices surged, mortgages securitized by WaMu's Long Beach Home Loan subsidiary consistently scored among the highest default and delinquency rates in the business—worse even than Ameriquest, the subprime lender run by the original founder of Long Beach, where the movie Boiler Room was an actual part of orientation.
WaMu’s ability to out-defraud the boiler rooms was a function of its formidable internal and external marketing efforts, along with the hopeless dysfunction that characterized every realm of operations that didn’t involve branding. Merged banks’ computer systems went un-integrated, until the bank was running 12 separate non-compatible loan processing software systems. Thousands of new computers sat mysteriously in warehouses gathering dust, while thousands of mortgage payments sat inexplicably in safe deposit boxes without getting processed. Killinger canvassed the country in his Cessna jet handing out WaMurabilia like limited edition Kerry Killinger bobbleheads, while his company conducted its affairs on an archaic pre-email internal communication application that cost $2,000 to install. Hilariously, Killinger at one point took to habitually posing the question: What would a real company do in this situation?
At WaMu, the answer was invariably: “fuck reality,” as a 2003 focus group report subpoenaed by Levin’s staff on a product WaMu would market as its “flagship loan”—the Option ARM—demonstrates. Option ARMs, once referred to as “NegAms” for the negative amortization they entail, were a kind of mortgage of last resort—offering struggling borrowers a few years of low introductory payments in exchange for ballooning balances and payments that would often triple when the introductory period expired. They were profitable for WaMu for all the reasons they were toxic to borrowers—high rates, high fees—and additionally, because some quirk of accounting alchemy allowed lenders to book as profit the amount by which customers’ loan balances increased each month. So WaMu’s strategic marketing department convened a few groups of Option ARM borrowers to attempt to divine their innermost thoughts and feelings about their mortgages, whereupon it learned: Option ARM borrowers were for the most part totally ignorant about how the loan actually worked, but had usually been told they were the only loans they qualified for. Negative amortization? “Most [participants] were not very clear on what it was … they generally thought that negative amortization was a moderately or very bad concept.” It was thereby redacted from the official sales pitch.
The critical symbiosis of marketing and fraud so fundamental to what’s rotten about our national situation is concisely embodied in Kevin Jenne, conductor of those focus groups. Complaining to Grind that the mortgage division censored his findings, which had led him to believe the Option ARM was an “evil” product, he then adds: “After a while, I lost that feeling.” But when the home loans team dispatched Jenne on a new mission four years later—figure out how to get delinquent ARM borrowers to start paying their bills again—he became the rare WaMu employee who ever confronted the nightmares their flagship loans had caused. “And then I thought, ‘No, no. This product is definitely evil.’ ” Faced with 80 hours of harrowing interview footage of terrified clients harassed all day by foul-mouthed collection agents, the bank resolves to develop “a friendlier approach to collections.” (And start selling off its Option ARMs as fast as possible.) Grind does not tell us what became of Jenne’s mortgage misery tour footage and does not suggest she made any efforts to obtain it. Jenne is now a consultant and “frequent guest lecturer” of marketing classes.
Grind’s cognitive dissonance about the cognitive dissonance she is documenting can occasionally infuriate. She concludes the book with a platitude from the bank’s former chief legal officer Fay Chapman about how “there’s no law against stupidity,” as if neither of them are supposed to remember the passage a few hundred pages earlier in which Chapman explains that fraud was so rampant that WaMu actually coined a specific designation—"bad fraud"—for loans so obviously fraudulent it was "unbelievable." She inexplicably characterizes Killinger as “a good listener” despite his near-unrivaled record of almost deranged failure in this regard. Of employees who show up to one of Killinger’s brand rallies, she writes: “Some couldn't believe they worked at a company—a bank, even!—that was just so cool.” Every serious management snafu or personal crisis seamlessly bleeds into another elaborate party scene: Even when Killinger leaves his wife of 31 years (but tells her not to say anything because he doesn’t want it affecting the company’s stock price) it’s presented as a footnote to his totally epic 50th birthday bash.
Her discussion of fraud comes largely within the context of a particularly grotesque convention of the President’s Club, wherein top mortgage producers were flown each year to a luxury resort and showered with gifts, shadowed by fake “paparazzi,” and otherwise indulged as though they were, in the words of one attendee, “dignitaries.” At the 2006 President’s Club gathering in Kauai, Killinger bestowed a “lifetime achievement award” upon a 17-year mortgage consultant described as a man who has achieved "Henry Fonda, Burt Lancaster, John Wayne legendary status" within the business. It was Tom Ramirez, who had been the subject of an internal investigation the year earlier that determined that 58 percent of the loans he’d originated over the past two years contained fraud. Another awardee had an 83 percent fraud rate for the same time period.
And when customers started fleeing their WaMu accounts in September 2008—well, a few weeks were occupied attempting to vanquish Jamie Dimon, whose team at JPMorgan is likened by an anonymous source to a "cruel, vindictive pack of wolves." The irony here, of course, is that the diabolical Dimon seems to have underestimated WaMu's diabolical lending practices: Its now-famous botched "hedge" was originally designed to offset the spectacularly bad performance of the $230 billion in mortgages it assumed when it bought the seized WaMu. As of 2010, $75 billion of those mortgages were officially "nonperforming"; the bank refuses to release more recent loan performance data. In any case, though, that’s all someone else’s problem now; WaMu failed on Sept. 28, 2008, occasioning another series of parties replete with a final musical performance bidding farewell to the friendly “fair, caring, hardworking, honest and fun … folks of WaMu.” As the prescient WaMuse Britney Spears once observed, I’m not that innocent.
The Lost Bank: The Story of Washington Mutual — The Biggest Bank Failure in American History by Kirsten Grind. Simon & Schuster.