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The Lost Bank

Wall Street Journal reporter Kirsten Grind tells the arrogant, shocking, utterly mad story of the biggest bank failure in US history.

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Though the book is long on details, it’s short on analysis. Instead of situating Washington Mutual within a broader context, Grind spends much time detailing the company’s increasingly extravagant and bizarre culture. At an annual gathering for top loan writers known as the President’s club, actors performed “The Rocky Horror Picture Show” at a renovated sugar refinery on the island of Kauai. At a revival-themed meeting in Atlanta, an “evangelist” in a white suit praised the bank’s mortgage products and a gospel choir was flown in from Los Angeles to sing about “The Power of Yes.”

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“The Power of Yes” was an advertising campaign that the bank’s chief risk office, Jim Vanasek, cautioned had to be countered with “The Wisdom of No.” Vanasek earned the nickname “Dr. Doom” and his advice went unheeded in the frenzy of making short-term profits with predatory lending.

In a fascinating if unexamined parallel, Killinger’s biography mirrors the trajectory of the bank; as Washington Mutual continued to expand, his lifestyle became more lavish. He began flying private jets and spent more time out of the office, which became a sore point for executives and managers. He divorced his wife of 31 years and acquired new homes with the woman he married eight months later. As fraudulent loan-making escalated rapidly, so did Killinger’s compensation. In five years, he made nearly $80 million.

Killinger changed the company’s structure, decentralizing power by dividing Washington Mutual into three autonomous units. And it was increasingly the Home Loans Group that had his ear.

Though it was apparent that the astonishing rate of mortgage lending couldn’t continue, Killinger announced a five-year plan he called “Washington Mutual’s high-risk lending strategy.” The plan was to increase production of Option ARMS but also to make more home equity loans and more subprime mortgages. As losses stacked up with the downturn in the housing market in 2007, Killinger remained relentlessly optimistic, shocking other executives as he continued to avoid making decisions. He was forced out two weeks before Washington Mutual was sold.

At a Senate hearing in April 2010, Killinger said that Washington Mutual had been mistreated because it was not one of the banks considered “too clubby to fail." An executive who had resisted any regulation blamed the government for failing to rescue the bank that he had steered to ruin.

The FDIC sued Killinger and two other Washington Mutual executives accusing them of reckless lending. In December 2011, the executives settled with the government for $64.7 million; almost all of the money came from their bank-funded insurance policies.

Amy Rowland is a freelance writer in Brooklyn, N.Y.

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