Kirsten Grind's new book "The Lost Bank" is an excellent account of the failure of Washington Mutual, the biggest bank failure in U.S. history. Grind discusses her book Thursday at the main branch of the Seattle Public Library.
Unlike Americans living in the immediate aftermath of the Great Depression, we know what caused our economic calamity, thanks to some excellent books.
Among the best: “13 Bankers” by Simon Johnson and James Kwak, ” Freefall” by Joseph Stiglitz, and “All the Devils are Here” by Bethany McLean and Joe Nocera.
Now “The Lost Bank: The Story of Washington Mutual — The Biggest Bank Failure in American History,” (Simon & Schuster, 400 pp., $27), a self-assured new book by Kirsten Grind, deserves to be added to that shelf.
Grind, now a reporter for The Wall Street Journal, covered WaMu’s collapse for the Puget Sound Business Journal. Her work on that story, along with that of Jeanne Lang Jones and Alwyn Scott, was a 2010 finalist for the Pulitzer Prize in explanatory reporting.
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In “The Lost Bank,” Grind achieves the best of the business journalist’s calling, not only reporting the WaMu disaster in clear, compelling prose for the general reader, but also offering new information and details that may surprise those who think they know the story.
Washington Mutual was “a friend of the family” under Lou Pepper, the beloved chief who saved the thrift in the 1980s. Pepper fatefully bought Murphey Favre, a Spokane-based broker-dealer firm where a bright young man named Kerry Killinger worked. In 1990, Killinger became WaMu’s chief executive.
Grind offers a complicated portrait of Killinger, an Iowa boy from a musical family, shy, aloof, confrontation-averse and brilliant in finance. “Even the people who would have known him best, didn’t really,” she writes. Still, for some time, he maintained WaMu’s quirky, homey culture and tight-knit executive team, even as it embarked on a huge acquisition spree.
WaMu seemed adept at the complex task of buying and integrating other thrifts and mortgage lenders. Things initially started to go off the rails when it acquired a small subprime lender, Long Beach Mortgage. This would be the beginning of the cancer of liar-loans (loans that required little or no proof of the borrower’s income, assets or creditworthiness), and other shoddy practices that would consume Washington Mutual.
Still, as Grind makes clear, subprime loans were very profitable, and as Wall Street bundled mortgages and sold them as securities, the pressure was on to keep selling, growing and enjoying huge paydays. WaMu’s motto became “The Power of Yes.” Even as it grew to become the nation’s largest thrift, risk management failed and the old cohesion of upper management fell apart.
The ground was prepared for the institution’s collapse during the financial panic of 2008.
At its best, “The Lost Bank” offers the pacing and energy of a fine thriller. Grind also covers important new ground, detailing regulatory malpractice, WaMu’s lack of political influence in Washington, D.C., the bank run that saw customers withdraw $1.8 billion in a single day, and the maneuvers by the New York banks, especially JPMorgan Chase, that further weakened WaMu.
The book would have benefited from more sweep, especially of the banking mergers that created the likes of today’s Bank of America and Citigroup. Killinger was small fry compared with Hugh McColl Jr., Sandy Weill, Jamie Dimon and Ed Crutchfield.
This raises another issue: WaMu was not a bank, but a savings and loan, or thrift institution. It would have been useful to know more about how it survived the S&L crisis. But more important, the term “bank” is too loosely applied, even if WaMu was the largest banking failure. Real commercial banks enjoyed advantages WaMu lacked.
Finally, too often I had to go back to find when certain events were happening. A bit more attention to consistently putting dates in the narrative would have helped.
These are small cavils in an otherwise sparkling achievement. Readers can draw their own conclusions. Among mine is that Washington Mutual could have been saved.
Jon Talton is economics columnist for The Seattle Times. His new book is the mystery “Powers of Arrest.”