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Robert Trigaux

Deconstructing WaMu's failure: 'A disgrace'



Wamufails Wake up, good morning and happy holidays: When banks (or any companies) fail from bad behavior, it can feel like a cliche to read stories with employees -- right in the thick of the mess -- later saying they "can't believe" what was going on as their employer collapsed about them. Consider the failure of Washington Mutual and these remarks of regret from Dana Zweibel, a former financial representative at a WaMu branch in Tampa, as quoted in this New York Times story:

“It was a disgrace. We were giving loans to people that never should have had loans.”

If Zweibel doubted whether customers could pay, the story says, supervisors directed her to keep selling, she said. “We were told from up above that that’s not our concern,” she said. “Our concern is just to write the loan.”

Welcome to the classic take on a bank hell-bent on growth and generating short-term income and fees during the housing bubble. But as the New York Times story points out, "getting the job done" at WaMu meant lending money to nearly anyone who asked for it. And if some kickbacks to real estate agents for referring mortgage applications to Washington Mutual helped along the way, so be it. It was that mantra that generated the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in U.S. history.

The business press widely reported that the failure of Washington Mutual should have been accompanied by many, many more bank collapses and regulatory seizures in 2008. Failures rose, yes, but not nearly to the anticipated level. The  FDIC reports only 25 banks failed -- including just two in Florida, both in Bradenton (First Priority here and Freedom Bank here) -- well short of the hundreds nationwide some had predicted at the beginning of the year. Oddly, to me at least, 10 of the 25 banks that failed this year were either in Georgia (five failed there -- what's up in this state?) or far larger California (five more there). What happened?

Observers offer a range of reasons, from the government's direct investment in healthy institutions, which spurred some banks to buy troubled ones, to its efforts to back bank debt and guarantee liquidity. according to the American Banker trade newspaper. They also cite a lagging business cycle that has yet to finish off some troubled institutions, regulators that are stretching out the timetable for failures to conserve resources and prevent panic, and other factors. And plenty of Florida banks grew weaker as 2008 progressed, notes Bauer Financial's quarterly analysis available in a St. Petersburg Times searchable data base of Florida banks. Translation? Plenty more banks are poised to fail in 2009.

(Photo credit: The Truth About.)

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:23am]


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