This week, Kerry Killinger, the disgraced former CEO of Washington Mutual (WaMu), presents a long document to a Congressional committee investigating the WaMu takeover by the FDIC and eventual sale of the firm to JP Morgan for a fraction of its previous value during the financial crisis of 2008. A lot happened in September and October of 2008. I remember it because everyone employed at every bank didn’t know if they were about to be bought, be buying, or shut down by the government. I wasn’t biting my nails, but I don’t think I was doing a whole lot of work either. Let me just give you a quick timeline of the events during these months:

September:
7: Fannie and Freddie taken over
14: Merrill Lynch sold to Bank of America
15: Lehman Brothers goes bankrupt
17: AIG Bailout of $85 billion
25: WaMu taken over by FDIC after bank run; sold to JP Morgan
29: First version of TARP fails in the House
29: Citi announces plans to buy Wachovia
30: Treasury changes to tax code to incent banks to buy other banks.

October:
3: TARP bill passes and is signed into law.
3: Using tax change mentioned earlier Wells Fargo outbids Citi for Wachovia
10: Dow ends weeks down more than 20%.
14: TARP money dispersed.

Other things happened before, during, and after this time, but these 5 or so weeks were the make or break point for the economy. Despite many failings, the actions of the government and banks, however controversial, probably saved us from depression. For a full timeline check out here and here.

But anyway, WaMu is all pissy because they didn’t get a bailout. Killinger’s claim is that it was because WaMu wasn’t one of the “cool club” of Wall Street banks. No offense to WaMu (but tons of offense to Killinger), but they didn’t deserve a bailout. They weren’t too big to fail. Lehman was more important and they were allowed to fail. No one even questions AIG’s (though everyone hates it) bailout. WaMu was nothing compared to AIG or any of the firms on Wall Street that got the favorable treatment. In addition though, WaMu was taken over by the FDIC because their own customers were pulling out all their money. No bank in that situation was saved. Simply put, WaMu wasn’t important enough.

It’s perhaps Killinger’s arrogance that leaves me with no sympathy for the man or his failed institution:

“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”

The bitter irony of this statement is that Killinger said this in 2003. 5 years later, WaMu ceased to be a bank at all! Killinger basically allowed anyone to get a loan in the name of growth and lining his own pockets. He was no better than Countrywide in this manner, and a number of the loans they sold off to investors were just as fraudulent as Countrywide’s. So not only were they not big enough to be considered systematically important, they were also part of the scum that committed the most serious frauds of the subprime crisis.  And you’re pissed because you didn’t get the free money from the government teat?

Well WaMu, neither did Wachovia.  They bought a mortgage provider (bad move) that was ultimately their downfall.  And they managed to last long enough to get TARP money but still sold themselves to Wells Fargo.  Wells Fargo, by the way, is not a Wall Street bank.  They competed in the same markets you did, yet somehow just made conservative loans.  Oh, and then there’s Merrill Lynch, the most Wall Street of Wall Street itself that wasn’t saved from disaster either.  And last I checked, Bank of America isn’t a Wall Street bank.  Don’t act like you were excluded because you weren’t cool.  You were excluded because you were expendable and played one of the single most important roles in creating a subprime meltdown.

I’m no more happy about the performance of Wall Street than anyone else.  It’s embarrassing to be associated with these firms.  Many people were corrupt, and dirty.  But nothing is a scummy as pretending to be an innocent pawn caught up the middle of something you don’t understand and then bitching to Congress about it.  Killinger, you’re scum.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice.

categories: banking, economics, government, loans