Wednesday, April 14, 2010

Walking softly and carrying a big club

That's, perhaps, the view of the West Coast cabal of mortgage originators about the East Coast cabal of securitizers, at least as Guambat reads the latest from the Washington Mutual inquisition.

WaMu Chief Killinger Didn’t Trust Goldman Sachs, E-Mails Show
Washington Mutual Inc.’s former Chief Executive Officer, Kerry Killinger, didn’t trust Goldman Sachs Group Inc.

“I don’t trust Goldy on this,” Killinger wrote in an Oct. 12, 2007, e-mail reply to Todd Baker, Washington Mutual’s executive vice president for corporate strategy and development. “They are smart, but this is swimming with the sharks. They were shorting mortgages big time while they were giving CfC advice,” he said, referring to Countrywide Financial Corp., the home lender that ran short of cash the same year.

The e-mail exchange recounts how Killinger, now 60, rejected a suggestion from Baker that they hire Goldman Sachs’s John Mahoney to find ways of transferring credit risk off of WaMu’s balance sheet. While Baker wrote that Mahoney was his “strong first choice” for the assignment, he said that he, too, had concerns.

“John himself is very discreet but we always need to worry a little about Goldman because we need them more than they need us and the firm is run by traders,” Baker wrote, according to the documents available on the Permanent Subcommittee of Investigations Web site.

Former WaMu CEO Blames Wall Street 'Club'
Former Washington Mutual Inc. Chief Executive Kerry Killinger scoffed at lawmakers who blamed him for the largest bank failure in U.S. history, accusing regulators of helping only financial institutions deemed "too clubby to fail."

"For those that were part of the inner circle and were 'too clubby to fail,' the benefits were obvious," Mr. Killinger said. "For those outside the club, the penalty was severe."

Mr. Killinger was ousted about three weeks before Washington Mutual failed. The thrift was sold to J.P. Morgan Chase & Co.

Washington Mutual leaders' bad bet led to bank's seizure
During the bank panic of September 2008, Treasury Secretary Henry Paulson was deep in phone calls to his old associates on Wall Street — calls in which Killinger, as he complained Tuesday, was not included.

In 2008, at a time when banks everywhere were gasping for air, the federal oxygen was administered selectively — to Chase, Citibank, Bank of America, et al., but not WaMu. The FDIC let the "Friend of the Family" turn blue in the face, seized it, held it for 30 seconds, and signed it over to J.P. Morgan Chase.

Killinger implied that WaMu could have survived, and "was seized in an unnecessary manner."

Maybe it was. But in the chaos, who was to define what was necessary? The decision was made by a handful of federal employees. None lived here. None wanted to use public credit to save a bank in Seattle.

None of this takes away the responsibility that rests on the shoulders of WaMu management.

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