WaMess

The New York Times this morning profiles the shaky lending practices of Washington Mutual (WaMu) that would eventually lead to the downfall of the lending giant and several others in the financial industry. WaMu patterned its business model after those of retailer franchisers Starbucks and Home Depot. Speaking in 2003, WaMu CEO Kerry Killinger said this of his company’s aggressive strategy:

“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”

They’re not calling WaMu much of anything, anymore Mr. Killinger. Apparently, WaMu had a problem with saying “No” to prospective loan applicants. In one case profiled by the Times, the applicant claimed a six-figure salary for a profession not used to such extravagant wages: a mariachi singer. The loan officer could not verify the applicant’s salary, but did manage to take a picture of the singer dressed in his mariachi outfit in front of his home. Approved.

But we wouldn’t be in this mess now if WaMu was the lone example. In his book, Behind the Housing Crash, author Aaron Clarey details an industry where loan practices like the one described above were the norm. Clarey should know – he was an analyst for several banks in the Minneapolis/St. Paul area from 1998-2007. Alarmed at the growing number of defaults and lax lending standards, Clarey sought to warn his employers of an impending crisis. His efforts were ignored, and he left the industry altogether in protest before the bubble burst.

Although I’m only a third of the way through it, Behind the Housing Crash is an interesting, albeit depressing read from a person who experienced the downfall of an industry from the inside.