The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History [Hardcover]

Kirsten Grind (Author)

Book Description

Release date: June 12, 2012

During the most dizzying days of the financial crisis, Washington Mutual, a bank with hundreds of billions of dollars in its coffers, suffered a crippling bank run. The story of its final, brutal collapse in the autumn of 2008, and its controversial sale to JPMorgan Chase, is an astonishing account of how one bank lost itself to greed and mismanagement, and how the entire financial industry—and even the entire country— lost its way as well.

Kirsten Grind’s The Lost Bank is a magisterial and gripping account of these events, tracing the cultural shifts, the cockamamie financial engineering, and the hubris and avarice that made this incredible story possible. The men and women who become the central players in this tragedy— the regulators and the bankers, the home buyers and the lenders, the number crunchers and the shareholders—are heroes and villains, perpetrators and victims, often switching roles with one another as the drama unfolds.

As a reporter at the time for the Puget Sound Business Journal, Grind covered a story set far from the epicenters of finance and media. It happened largely in places such as the suburban homes of central California and the office buildings of Seattle, but Grind covered the story from the beginning, and the clarity and persistence of her reporting earned her many awards, including being named a finalist for the Pulitzer Prize and the Gerald Loeb Award. She takes readers into boardrooms and bedrooms, revealing the power struggles that pitted regulators at the Office of Thrift Supervision and the FDIC against one another and the predatory negotiations of investment bankers and lawyers who enriched themselves during the bank’s rise and then devoured the decimated bank in its final days.

Written as compellingly as the finest fiction, The Lost Bank makes it clear that the collapse of Washington Mutual was not just the largest bank failure in American history. It is a story of talismanic qualities, reflecting the incredible rise and the precipitous collapse of not only an institution but of trust, fortunes, and the marketplaces for risk across the world.

Editorial Reviews

Amazon.com Review

Amazon Best Books of the Month, June 2012: The collapse of Washington Mutual in September 2008 was the largest bank failure in U.S. history and a symbolic casualty of America’s unfolding financial crisis. Wall Street Journal reporter Kristen Grind provides a fascinating fly-on-the-boardroom-wall account of the bank’s final hours, and takes us back through the history of what started as a quirky, familial savings and loan and became a byword for America’s financial malfunction. This is no tedious, dry retelling of a story we’ve heard hundreds of times in the last four years—Grind masterfully explains even the most complex financial concepts and has a natural talent for ferreting out tiny but humanizing details. Grind has already received numerous awards for her coverage of WaMu’s mighty fall, and The Lost Bank stands beside The Big Short and Too Big to Fail as required reading for students of the Great Recession. --Juliet Disparte

Review

"An exhaustively researched and well-written account of one of the widely ignored chapters of the great financial crisis. Grind does an excellent job of bringing the complex story to life, and capturing the sense of drama and the impact on peoples' lives. It also casts a spotlight on the role of the FDIC, which has not received as much attention as it should have done. An insightful and well-written book." —Gillian Tett, author of Fool's Gold

"Kirsten Grind’s dogged reporting lays bare a tale of out-of-control salesmen and executive-level gamblers who transformed one of America’s most respected banks into a weapon of mass financial destruction. The Lost Bank is a page-turning read that exposes the Wild West banking tactics that harmed customers, workers and the nation as a whole."—Michael W. Hudson, author of The Monster

"The transformation of Washington Mutual from folksy community lender to reckless 2000-branch behemoth is one of the epic stories of American finance. The bank that banned potted plants to save money in the 1980s became the bank that hired white-suited ‘evangelists’ to praise its go-go mortgages with screams of 'WaMu-lujah.' Grind tells this boom-bust story without lapsing into melodrama or malice, and her tale is all the more powerful for that." —Sebastian Mallaby, author of More Money Than God

"The Lost Bank is a superbly written, insider account of the collapse of Washington Mutual, among the more surprising downfalls of the financial crisis. It's a story of hubris, ambition and poor judgment that entertains but also is a disturbing coda to the difficult period, providing enduring lessons about how a group of executives who predicted the housing collapse were somehow felled by it."—Gregory Zuckerman, author of The Greatest Trade Ever

"What a marvelous book this is, so well-reported and so well-told by a writer who really threw herself into telling her story. And what an incredible tale that turns out to be, a once-beloved bank felled by greed, hubris, and a shocking disregard of all the obvious warning signs portending the financial disaster that was about to hit all of us. The life-savings of shareholders go up in smoke, a long-standing institution is done in by a new breed of short-sited executives, and meanwhile there was the havoc caused by all those subprime mortgages Washington Mutual, one of the country’s more aggressive and reckless lenders, pushed through the financial system. The Lost Bank would be a joy to read if not for the Greek tragedy that unspools vividly and painfully before your eyes. A first-rate job by a first-rate journalist."—Gary Rivlin, author of Broke, USA

"A detailed, instructive account of a bank failure far away from the power centers of New York City."—Kirkus Reviews

"Lucid, entertaining . . . One of the best accounts... of the Great Crash as it played out on a human scale."—Publishers Weekly (starred review)

"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... [A] sparkling achievement." (Jon Talton The Seattle Times)

"Grind... has produced a compelling case study of corporate incompetence and of how regulators are politically captured by the businesses they are meant to oversee."—Steven Pearlstein, The Washington Post

"An eye-opening book."—Booklist

See all Editorial Reviews

Product Details

• Hardcover: 400 pages
• Publisher: Simon & Schuster; First Edition edition (June 12, 2012)
• Language: English
• ISBN-10: 1451617925
• ISBN-13: 978-1451617924
• Product Dimensions: 9.5 x 6.4 x 1.3 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.3 out of 5 stars  See all reviews (49 customer reviews)
• Amazon Best Sellers Rank: #129,804 in Books (See Top 100 in Books)

More About the Author

In 2009, Kirsten Grind wrote a series of investigative articles about Washington Mutual for the Puget Sound Business Journal in Seattle. WaMu had collapsed in September 2008 during the financial crisis, marking the largest bank failure in U.S. history. The stories later received a Pulitzer finalist citation and won numerous other national awards. Grind then spent the next two years interviewing hundreds of people and digging through thousands of documents for The Lost Bank, the first book to be written about WaMu's failure. It is written as a narrative, so that even those with little interest in banks or finance can understand (and relate to) one of America's greatest financial catastrophes. Grind is now a reporter for The Wall Street Journal in New York.

Most Helpful Customer Reviews

46 of 48 people found the following review helpful

5.0 out of 5 stars The Lost Bank Reviewed for the National Mortgage News by a former WaMu employee July 2, 2012

By Micheleperrin

Format:Hardcover

Reviewed by Michele Perrin, CPA, CMB, of Perrin & Associates, a Mortgage Banking/Warehouse Lending consultant and former First Vice President of Washington Mutual's Mortgage Banker Finance Division.

Reading The Lost Bank, journalist Kirsten Grind's in-depth investigation into the demise of Washington Mutual, was an emotional experience for me as a former "Wamulian" and a named character in the book. I knew that Kirsten had really done her homework based on how many times she called me with questions as she relentlessly pursued the story, but I never imagined how much truly stunning information she would dig up. I laughed, I cried (at least twice), and I gasped out loud as I read a story I thought I knew so well. Who knew a book about a bank could be such a gripping read? Who knew there was so much more to tell?

Kirsten Grind is a Wall Street Journal reporter today, but she was covering Washington Mutual for the Puget Sound Business Journal during the tumultuous final years of WaMu's dominance of the Seattle economy and skyline. She was a finalist for the Pulitzer Prize for her work covering the FDIC's takeover of Washington Mutual in September of 2008. She estimates that she read over 10,000 documents related to WaMu and interviewed hundreds of people, and her diligence paid off.

The books starts with a prologue from September 25, 2008, the day WaMu was taken over by the FDIC, but then steps back to 1981 when Lou Pepper reluctantly finds himself at the helm of a unprofitable $2 billion thrift with 35 branches in Washington State. He sets about making the place into the "Friend of the Family...." Lou comes up with folksy WaMu values for the employees, like "Ethics, Respect, Teamwork, Innovation & Excellence," some of which they were still using when Bank United, where I was working, was acquired by WaMu in 2000. But sadly for the Bank, by 1986 Lou was nearing 65 and must pick a successor.

Enter Kerry Killinger, who according to Grind, was "more comfortable with numbers than with people," but by the end of 1988, became president of the Bank. The book fast-forwards to 1997, when Killinger was working to purchase Home Savings, which was to make WaMu the largest savings & loan in the nation. Killinger had been buying up banks at an unprecedented rate ever since he became president, catapulting the sleepy Seattle thrift from $7 billion in assets to $150 billion in just 10 years. But Kerry had only just begun.

Killinger seems to have gotten a taste of being the "biggest" and now wanted to top every list. His next target: biggest mortgage lender in the US. In addition to an average of two large acquisitions per year, including subprime lender Long Beach Mortgage, one of his strategies was to loosen lending standards. Stated income loans (fondly referred to as "Liar Loans") were one of the star products, even at Long Beach Mortgage, where they also increased LTVs on subprime mortgages to 95% (sounds crazy now, doesn't it?). In 2003, powered by the Bank's "Higher Risk Loan Strategy" and the WaMu ad campaign, "The Power of Yes," the volume of mortgage loans tripled, reaching an astonishing $155 billion. "It wasn't the largest lender yet, but it was getting close," writes Grind.

Killinger's ego appears to have been inflating along with the Bank's balance sheet, as he decides to build a giant skyscraper in Seattle in 2003 for WaMu's headquarters. Killinger starts holding giant "brand rallies" for huge groups of employees across the country where he dances out onto the stage like a rockstar. He hosts opulent President Club retreats for top performers in Hawaii and Punta Mita (I was fortunate enough to attend a number of those and she didn't report the half of what went on!).

Grind quotes songs and skits from WaMu sales meetings to illustrate the culture, including one sung to the tune of "Baby Got Back," "We like big bucks and we cannot lie." The Home Loans Group staged a mock funeral for top competitor Countrywide, accusing them of "reckless behavior." One presenter at a brand rally pretended to be a holy roller preacher and kept shouting "Wamulujah!" as a choir sang behind him. These situations show how Killinger changed the culture at WaMu from "Ethics, Respect..Excellence" to greed, ego and unrealistic optimism.

By 2005, in spite of WaMu's concerns that there was a housing bubble brewing, they began to focus on Option ARM loans (negative amortization loans). I knew that Option ARMs accounted for 65% of WaMu's loans by 2007, but I never imagined that high-risk stated income loans made up as much as 80% of WaMu's Option ARMs and up to 90% of WaMu's home equity loans. Grind quotes Senator Ted Kaufman (D-Del) reading those statistics out loud in a later congressional hearing, then repeating them. "'I keep saying these numbers over again because I hope they're going to change,' he said drily."

With the real estate boom finally beginning to cool in 2006, as you might expect, defaults began to grow and then to skyrocket, and as delinquencies and losses increased into 2008, the stage was set for the FDIC's takeover of the Bank.

Here is where Grind is at her best, putting the reader into the action as the FDIC works behind the scenes to orchestrate the Chase takeover of the bank. Grind points the finger at a number of culprits for the bank's demise, including the Board of Directors for not getting involved and Killinger for his failure to consider risk, but she also uncovers some surprising villains in the whole affair. And former WaMulians may be happy to find that perhaps JPMorgan Chase didn't get such a bargain when they bought the Bank from the FDIC for $1.8 billion.

What Grind does not attempt to provide is the bigger picture of what was going on in the entire mortgage industry during these years. I wish it were only Killinger and WaMu that were so egotistical, greedy and overly optimistic. But Grind does a great job getting to the bottom of what really caused the largest bank failure in US history. Read more ›

34 of 36 people found the following review helpful

5.0 out of 5 stars Former WaMulian's perspective July 3, 2012

By Banker Gone Gaming

Format:Hardcover|Amazon Verified Purchase

This is an extensively researched, great book that will be enjoyed particularly by those who are interested in understanding the psychology of some of the participants behind the financial collapse.

The book is more about the unraveling of Kerry Killinger and his executive team than it is about the bigger problems that plagued the credit and housing markets. But it's a great snapshot of the biggest bank collapse in American history and those who were supposed to regulate it. All told, the book feels accurate.

I was an officer at WaMu, having spent time in various marketing roles at the bank, including tours with the Retail Bank and Home Loans. I was there right up till the end and remember vividly that evening on September 25, 2008 when we found out we had been seized and handed over to JPMorgan Chase. We weren't surprised we were snatched up by another bank, but we were we disappointed it was Chase, which we knew would almost certainly eliminate all our jobs. As a marketer, the knowledge that Chase would impose its cold, tone deaf brand across our branch network, including Seattle, just added insult to injury. While I certainly wasn't privy to the conversations happening among WaMu executive team (thank God), I have to say the book largely reflects the perception that I believe most of the employees at headquarters had at the time. We thought WaMu's leaders, namely those in Home Loans, had completely lost their way and polluted the portfolio. We thought Kerry's pollyannaish view of the world totally outweighed the intellect that had made him a banking superstar. We thought our own executives' terrible decisions were due not only to their own greed and naivete, but also pressure from the secondary markets.... (Meaning, effectively WaMu was seduced by the Goldmans and Lehmans of the world; the investment banks created an insatiable hunger for dangerous, high margin products that slowly infected each step of process - from the secondary markets, the consumer banks, the brokers and ultimately the consumers too. That's not to say WaMu's leaders weren't also culpable - I think they were). We thought Kerry never had access to the real power corridors roamed by the likes of Hank Paulson, Jamie Dimon and Sheila Bair. We thought that although we technically had adequate liquidity, a significant run on the bank would doom us because our massive deposit base would wipe out entirely the FDIC's reserves. We thought that neither Bair nor Paulson was particularly motivated to try to help the shareholders, customers or employees. That all proved to be true and this book does a good job, to varying degrees, of weaving some of those factors into a great story. Kirsten Grind really captured what was happening internally at WaMu, in my opinion.

At the end of the day, this was a sad time for our customers, shareholders, and employees. For the honest, hardworking people who "just worked there" and didn't know about the misguided decisions destroying the company, it was both fascinating and disheartening to watch the dominoes fall. We felt for our customers, our shareholders and each other. I think that comes through well in the book. As Grind notes, the place had an amazing culture, one I can't really articulate in a way that does it justice. People just loved working there, even as we started to unravel. The desire to do right by the customer was built into our DNA, and to see the way these terrible products had been foisted off on consumers to feed the cash machine felt like such a betrayal by leadership. Still, whether earnings were positive or negative, it was the best place I ever worked because of the people. So for me, reading this book felt like walking through a ghost story, as I sadly nodded my head throughout it. The financial crisis taught us that there were villains everywhere: the banks, the FDIC, OTS, Treasury, the brokers, the investment houses, and on and on it goes. This book certainly validates that, exposing both Kerry Killinger and Sheila Bair as myopic, out of their depth and hopelessly biased in very different ways. Sometimes I wish we could sentence Killinger and Bair to sit in a room together for the rest of their lives and contemplate their mistakes and philosophical differences while annoying muzak plays in the background. But the system doesn't punish the privileged equally, as we know. In general, I've moved on with my life and don't care much anymore.

This really is a good book. I would have liked to see Grind explore the impact of the Federal Reserve's (lack of) oversight throughout the 1990s and 2000s, along with on the secondary market's influence on the entire financial system, including consumer banks. I think those factors were the primary catalysts, at least in the beginning. In that regard, I think those omissions make the book a little bit incomplete. However, it's not a story about that. It's about WaMu. It's about the guy who built it, then lost it. And that's enough. Read more ›

12 of 12 people found the following review helpful

5.0 out of 5 stars Amazing Book August 15, 2012

By Steven M. Grisham

Format:Hardcover

As a former WaMu employee, I enjoyed the accuracy and fair treatment of the subject here. I was amazed at the information the author was able to include in the book. Everything from the "shower stalls" (had to laugh when I read that, the same way I did when I heard that term for the first time in 2002), the internal blog, lending guidelines, the enthusiasm for the WaMu Center, and the especially the employee experience from 2006 - 2009.

I highly recommend this book to former WaMu employees, others in banking, and anyone who wants to understand the financial failure of the institution.

33 of 44 people found the following review helpful

3.0 out of 5 stars Human Interest Story Lacking Analysis June 14, 2012

By las cosas

Format:Hardcover

This book covers the personalities and the general story arc of Washington Mutual's rise since the S&L debacle of the late 1980s through to its demise early in the sub-prime mortgage fiasco of 2008. I lived in San Francisco during that time, and remember my surprise when seemingly overnight I went from never having heard of the bank to realizing it had taken over billboards around town and purchased my (30 yr fixed) home loan. What was this institution, where did it come from? And when it spectacularly failed, I wondered what exactly went wrong. I knew it overloaded on home loans that failed, but how did it get so large, and how did regulators allow it to make such a disastrous portfolio of home loans? Given the book's title, The Lost Bank, The Story of Washington Mutual-The Biggest Bank Failure in American History, I expected this book to answer my questions. Did it? Not Really.

The purpose of this book is not described until the epilogue! The author explains that while many books, articles and reports have been published on the details of the sub-prime crisis "many smart people still had no clear idea of how this crisis happened...I set about writing this book for the latter group of people, and I tried to do it in a way that was relatable (sic) to the average person." Apparently, her "average person" doesn't want to be bothered by analysis, or even explanations. Instead she provides simply a story.

She writes that the bank considered entering the CDO market, but neither defines these nor why that was an important issue. I'm not talking about a geeky analysis, simply an explanation and a description of the role and importance of these instruments in the market at the time.... There is a reason why even considering entering that business at that time was important, but the author doesn't seem to understand the issue. When Treasury boss Paulson controversially banned naked short selling of the shares of several financial institution, WaMu's boss tried, unsuccessfully, to add WaMu to the list. The naked short ban was a small chapter in the ongoing crisis, but an important one. The author merely says that "naked short selling means that original shares aren't borrowed." This explanation fails to explain why some officials believe it is toxic, while others believe it is unrealistic to think you can stop a market event by banning these instruments.

The first part of the book describes the bank under the leadership of Lou Pepper. This is the idyllic period. Lou is perfect, the bank is a family of nice people, profits rise slowly but continually as the bank makes good loans to good people. The bank is content with its place in the world. We learn zero details about anything during this phase of the bank except that Lou saved the bank from quite possibly going under during the S&L failures of the late 1980s. This portion of the book I found a waste of my time. It wasn't until I reached the source portion of the book that I learned that the author "relied on Lou Pepper's book ... to reconstruct events and to get a feel for the bank over the years." No wonder Lou come off as godlike!

The second part of the book starts when Lou retired, leaving the bank to his hand-picked management team. This group bought every bank they could find, starting small, using a team of specialists that came into the acquired institution Friday afternoon and by Monday morning the bank was re-branded and ready to operate as part of WaMu. At some point the top management of WaMu, a group of relatively unsophisticated individuals, simply lost touch with the expanding empire and it began to spin out of control. Management also became fixated with growth of deposits, branches and loan volume. At some point in the midst of this ludicrously fast growth, the bank apparently lost any semblance of sanity. Way out of control. The problem with this section is that while the story is not conveyed with the mythical storyline of the first section, it is told as a story narrated by a group of people employed by WaMu at the time. That story is lacking in depth and particularly analysis. We are told of scathing internal audits of a particular sub-prime unit within the bank. Apparently the audits went to senior management, period. Not disclosed to the board or regulators? And what exactly does it mean when we are continually told that the problems continued? By the end of this section of the book the bank was primarily making variable rate loans with teaser rates to people who did not qualify for traditional loans, and these loans were based on unverified income. Of course this wasn't going to have a happy ending. What I wanted to know, and still want to know, is why the checks and balances that supposedly exist: rating agencies, financial press, regulators, required public disclosures, board of directors oversight, etc. all failed. Absolutely none of this is discussed in the second part of the book. We learn that WaMu carefully cultivated its mortgage lenders and brokers, and we are then given endless detail about the annual President's Club event to reward the high performers. This description includes lyrics from songs, a listing of treats delivered to the hotel rooms, on and on. But an analysis of WaMu versus other banks in its use of these individuals in business development, how this changed over time, how they were supervised. Nothing. Just party details!

The third part of the book is the crash, and this is a day-by-day look at the bank's implosion. It is a detailed factual discussion of who did what when based on the reports and disclosures from the myriad investigations and lawsuits resulting from the crash. It was helpful to see what was going on within WaMu during each of the days when AIG was being bailed out, Lehman collapsed, Congress resisted authorizing the $700 billion bailout. The whole mess. In this portion of the book we hear endlessly (too much, actually) about the turf battle between FDIC and OTS, and finally we even hear something about the WaMu board of directors. But this whole section is the denouement. I want the causes, and I want some analysis of what went on. I received neither. Read more ›