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on July 2, 2012
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.
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on July 3, 2012
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.
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on August 15, 2012
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.
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on July 1, 2012
I appreciated the lens Kristin Grind used to focus on the individuals, relationships, team dynamics, organizational structure, and culture that created this collapse. The players were human and flawed and lost sight of what was most important.

The scariest part of all of this is that nothing, absolutely nothing, has changed fundamentally in the system to prevent this type of thing from happening again. Different names and faces, but the same greed, selfishness and myopathy. We're now seeing it with Jamie Dimon and JP Morgan Chase.
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on August 20, 2012
This is, IMHO, the best book written to date about the recent (2007-2008) financial crisis. *Much* finer writing than The Big Short. Rather than placing the blame solely on the bond rating agencies, this story offers a much broader perspective. Complicated financial concepts (asset back securities, CDOs, etc.) are explained in such a pleasurable way and in the context of a suspenseful story. Can't believe I found learning about the different regulatory agencies 'thrilling'. Sure, I'm a big nerd, but this book is the bomb!
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on December 9, 2014
My spouse was on the "Senior Management Team" at WAMU right up until the end, and while she is not named in the book, she worked with all those folks and I know a few of them myself.

First and foremost, Ms. Grind clearly did her homework and delivers an insightful and detailed accounting of what went so fabulously right for a long, long time - only to have it blow up in everyone's face. I can honestly say that we had absolutely no idea of what was going on with the Retail side of the bank (my wife was on the Commercial side) and in the bigger picture, NOBODY really had any idea how bad it was going to be. Even the experts (at least the ones anyone could hear) were expecting a "correction", but not a global meltdown of our Financial Sytem as we knew it.

As it regards the book, Ms. Grind clears-up a lot of myths and urban legends surrounding the collapse of the bank. Here's three biggies, for example:

1. The FDIC reached over the OTS and closed WAMU without appropirate proceedure or authority.
2. WAMU had plenty of liquidity to survive the crisis.
3. Kerry Killinger and Steve Rotella were first informed of the shut-down when they heard it on a TV Monitor in an Airport Bar.

All three completely untrue and clearly explained in the book.

It's obvioulsy fun for me to read about these characters that I knew, and in a few cases still bump into. But the bigger take-away is to remind us all of the hubris that infects us when things are going well. "It will NEVER END" we tell ourselves. We'll all just get richer and richer until everyone in North America has a NetJets pass and we'll just compete for the best seats at the Charity events in New York, Aspen and here in Seattle. Right?

As I was really getting into the meat of the story, I said to my wife "I'm suprised you haven't read this yet - it's great". Her reply?

"I'm not sure I want to revisit all that pain".
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on July 30, 2012
This book held my interest so well that I finished it in record time (for me).
I thought the author explained the terminology of the finance industry well
without overwhelming the reader with detail. There was enough of a human interest
angle to make things interesting. My favorite part of the book was the day-to-day
section leading up to the collapse. I was happy to see the author included
numerical information frequently. Some examples of this were audit samples of
mortgages to measure the extent of poor documentation, the percentages of
subprime mortgages and option ARM mortgages, the daily outflow of cash during
the final days, and other financial data. I am an accountant so I live for numerical info.

If I could have anything more in the book it would be even more financial
information. Income Statements, Balance Sheets, 10Q filings, etc. Still, this
book provided much more numerical info then the previous book I read called "Too
Big to Fail".

If this subject interests you be sure to read this book.
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on June 13, 2013
In readable prose the author explains the workings of a the bank and mistakes that were made repeatedly at all levels. Huge amounts of fraud in the mortgage business were documented. At the end I was left with uncertainty whether this bank with all its bad and fraudulent mortgages needed to fail. It had at the end still respectable capital reserves despite two bank runs. The goverments seizure of banks lacks consistency. One is left with the question did the FDIC in its end rush to close it make WaMu fail when there was still a realistic chance of salvaging this bank without the government taking it over in a shot gun marriage for WaMu to JP Morgan Chase
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on July 15, 2012
I am not a banker, I've never worked at a bank, and I never thought I would enjoy a book on banking, but this is told as a mesmerizing story and I find myself enjoying the book. I think the story and characters are compelling. I am thoroughly enjoying it. If it was stuffed full of detailed analysis, I'm not sure I would like it as much. As it is it's a good story, it just also happens to be fact. Good job.
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on September 13, 2014
This is a magnificent book. It is one of the best books on the financial crisis. The story of WAMU is told with rare honesty. The author, Kirsten Grind, does not use selective facts from the story to make a point. She just assembles the different perspectives of the various players and retells the story as told to her. No where will you find a more complete vignette of one of the seminal moments of the Great Recession.
The book is composed of two stories. The first is the tale of a good looking executive—the first hurdle any up-and-coming executive must jump—that rises to CEO. He is not without skills, but they are limited. He possesses financial analysis skills, but is naïve to the rough and tumble world of residential real estate brokerage. The second tale is the story about a government agency, the FDIC, that lacks knowledge, creativity, insight and any other trait you might assume is essential for them to do their job properly.
Kirsten retells her story of WAMU using a reality TV show approach. Consequently, the book is captivating, but like all reality shows it gets boring as Kirsten describes the rise of a CEO without ideas. But this pause is quickly rectified as Kirsten begins to describe the regulators and their inaction. The book becomes a fascinating story of corporate and government hubris and back stabbing as the vultures assemble to dissect their prey. Kirsten unfortunately was not able to get the regulators to reveal much of their actions behind closed doors. I wish the regulators were more forthcoming, but the author does an excellent job of filling in the blanks based on what occurred. At this point, it is not the story of a lack of financial controls in WAMU, but a said tale of unregulated government egos running down a hapless bank in the Pacific Northwest, far from the power centers in that other Washington.
Kirsten portrays the CEO as an inattentive pretty boy working for adulation and a large salary, hoping others would solve the problems of the bank. This characterization might be correct. Kirsten does make you wonder how many other CEOs are just pretty faces without any substance.
Kirsten bases her story of WAMU’s demise on high risk loans, but in fact the problem was high risk borrowers. Repeatedly throughout the book Kirsten makes the point subprime loans were more profitable than prime loans. Unfortunately, the author never explains how the WAMU executives accepted this analysis. The author’s failure to explain why WAMU made subprime loans in the ghettos of Los Angeles, left me unsatisfied with the subprime loan portion of the story. She doesn’t discuss the role of the Fannie Mae in WAMU’s decision making process. This oversight deprives the reader of a full understanding of what happened in the Financial Crisis. Nevertheless, the portion of the story the author tells is crystal clear like the mountain water of the Northwest.
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