Washington Mutual (WaMu) was the largest bank ever to go under in our history, and the word is that there's some possible criminal indictments going to be coming out of this.
SEN. CARL LEVIN: To keep that conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb. WaMu built its conveyor belt of toxic mortgages to feed Wall Street's appetite for mortgage-backed securities. Because volume and speed were king, loan quality fell by the wayside and WaMu churned out more and more loans that were high risk and poor quality.
Destructive compensation schemes played a role in the problems just described. These incentives contributed to shoddy lending practices in which credit evaluations took a back seat to approving as many loans as possible.
So there's evidence that:
- WaMu knowingly sold fraudulent loans to investors in the form of securities
- WaMu loan offices were falsifying documentation in order to churn out as many lousy loans as they could, to provide fodder for these securities
- WaMu senior management was putting pressure on the loan officers to churn out as much fodder as possible, as quickly as possible, and did this through compensation schemes that encouraged the loan officers to falsify documentation in the interests of maximizing the number of loans churned out.
So yes it's very likely that some people may eventually go to jail. And if the emails of midlevel managers at these banks telling their loan officers to falsify loan documents can be subpoenaed, these managers could very well go to jail as well.
These loans were eventually sold to investment banks which used them to manufacture new securities. Those investment banks were getting documents from Washington Mutual, which served as representations and warranties. Washington Mutual was by that means saying that these loans meet the criteria for inclusion in investment securities to be offered for sale. So, the investment bank is going to say, I got this document from Washington Mutual. They provided evidence that the loans were good, so you can't send me to jail. "Mistakes were made, but not by me. Everyone made mistakes, we're just human. This was beyond our control." But none of these statements are valid, for these are systems the banks themselves designed and controlled.
It's only when a firm collapses that you get full discovery. Now, Senator Levin is a great voice on this, and he's absolutely nailing this. But he only has the ability to get at this level of detail and documentation from a company that has failed, like WaMu did. For the people who were able to keep going -- the Goldman Sachses of the world -- you'll never know what they were really up to, unless you can get some former employee to provide the damaging evidence required.
These banksters are incredibly smart people. They're very well paid. They have every incentive to carry the day. The regulators are totally outgunned. And it's not an accident that the inherent complexity of the case may very well allow them to get away with their crimes. All this was planned for; it was thought out in advance; it was by design. That's the system they created, with malice aforethought. It's a carefully thought out system of beliefs and incentives -- much more profoundly dangerous than a conspiracy.
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