Monday, December 29, 2008

Of all the stupid...

Here's how a major, national bank goes under.

"As a supervisor at a Washington Mutual mortgage processing center, John Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling those of stockbrokers. He rarely questioned them."

Dumb idea. However, with the Fairness in Housing act forcing banks to make loans to people who did not qualify financially simply because of race, why not lend to everybody, regardless of whether or not they were an "oppressed minority"?

As if that wasn't enough, the individual mentioned above was serving time in prison. For theft.

"'I'd lie if I said every piece of documentation was properly signed and dated,' said Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest - all involving drugs.

While Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said."

Maybe his incarceration wasn't related to his job, but with that kind of a drug addiction, and the theft that he was imprisoned for, there's no guarantee that there was no embezzlement going on. It just means that there was none caught or proven.

"'In our world, it was tolerated,' said Sherri Zaback, who worked for Parsons and recalls seeing drug paraphernalia on his desk. 'Everybody said, "He gets the job done."'"

Seriously, do they live in a different world from the rest of us? How is rubber-stamping bad mortgages "getting the job done"?

"If [Dana Zweibel, a former financial representative] doubted whether customers could pay, 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.'"

Write the loan. No matter what, write the loan. Don't take it to the loan officer. Don't call the lendee's bank for verification. Just write the loan.

"Martine Lado, an agent in the Irvine, California, office, said she had coached brokers to leave parts of applications blank to avoid prompting verification if the borrower's job or income was sketchy.

'We were looking for people who understood how to do loans at WaMu,' Lado said."

So, the ability and willingness to defraud stockholders was what WaMu was looking for in employees? 'Fraid so.

"By the time shareholders joined WaMu for its annual meeting in Seattle last April, WaMu had posted a first-quarter loss of $1.14 billion and increased its loan loss reserve to $3.5 billion. Its stock had lost more than half its value in the previous two months. Anger was in the air."

I don't doubt it. I'd be a little . . . irritated, too.

Some shareholders were irate that Killinger and other executives were excluding mortgage losses from the computation of their bonuses. Others were enraged that
WaMu had turned down an $8-a-share takeover bid from JPMorgan.

Well, duh. They were writing themselves bonuses on capital lost by the investors. Of course investors were pissed, especially at the refusal to stop the cash hemorrhage.

It gets worse, of course.

In September, Killinger was forced to retire. Later that month, with WaMu buckling under about $180 billion in mortgage-related loans, regulators seized the bank and sold it to JPMorgan for $1.9 billion, a fraction of the $40 billion valuation the stock market had given WaMu at its peak.

Billions that investors had plowed into WaMu were wiped out, as were prospects for many of the bank's 50,000 employees. But Killinger still had his millions, rankling laid-off workers and shareholders alike.

This is the picture of what happened at only one failed, major bank. This is what we, the public, has funded with the partial nationalization of the banking industry. I know Killinger and company's "millions" is far from enough to pay back what he FUBARed, but it's a start.

And I, and probably thousands of stockholders and employees, think we should start with the millions defrauded out of investors' pockets with unearned (to say the least) bonuses.

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