Bubbles and Greed

Commentary By Ron Beasley

One of the biggest banks to fail, Washington Mutual, played a big part in the mortgage crisis and saw it coming.

Washington Mutual and its lenders were making so much money on
subprime mortgages and other risky loans that they couldn't stop � even
when senior managers and regulators told them to.

Internal company documents obtained by the Senate's Permanent
Subcommittee on Investigations show that despite concerns inside and
outside WaMu that its loans were failing at exceptionally high rates and
were riddled with fraud, the abuses continued right up to the collapse
of the subprime market in 2007.

Greed drove them to continue practices that they knew were unwise - they were addicted to quick easy money.  Just how unwise were they?

Later, in August 2007, Rotella said that he had once considered
WaMu's regular home-loans operation "the worst managed business I had
seen in my career." He added: "That is, until we got below the hood of
Long (B)each."

Problems abounded even among WaMu's allegedly prime home loans,
according to documents the Senate subcommittee will make public at its
Tuesday hearing on WaMu.

A November 2005 review of loans in southern California found "an
extensive level of loan fraud...virtually all of it stemming from
employees in these areas circumventing bank policy surrounding loan
verification and review."

At one California office, 58 percent of loans examined in an internal
review were fraudulent; at another, 83 percent.

Taken for a ride by Wall Street?

The company, subcommittee chairman Carl Levin said, seemed to be
focused on feeding investment banks' insatiable appetite for high-risk
loans that could be bundled, sliced up, sprinkled with financial fairy
dust and sold as investment-grade securities.

"This was a Main Street bank that was taken in by the Wall Street
profits that were offered to it if it churned out mortgages," said
Levin, a Michigan Democrat. WaMu, he said, "got turned into a
securitization factory."

While it's easy to blame the greedy bankers and investors it must be remembered that regulators had it in their power to stop it.