WaMu’s Killinger on ‘Too Clubby to Fail’ Banks
Kerry Killinger was the chairman and chief executive officer of Washington Mutual, the $300 billion savings-and-loan organization, from 1990 until 2008. During his tenure, he made more than $100 million in compensation, including more than $14 million in 2007 and $21 million in 2008 — granted for his oversight of WaMu’s tremendous expansion and rise in profitability, fueled by making loans to less-than-creditworthy borrowers.
In 2007, when the housing bubble started to burst, Killinger continued to stand by WaMu’s home loans business. With billions in losses racking up, in March, 2008, he rejected an $8-a-share merger offer from J.P. Morgan. Just months later, in September, 2008, WaMu went entirely belly up, with all of its shareholders effectively wiped out.
It is hard to pity Kerry Killinger — and less so after reading his prepared testimony for the Senate Permanent Subcommittee on Investigations, headed by Sen. Carl Levin (D-Mich.). Killinger insists that the government seizure of WaMu, in the largest bankruptcy in banking history, was an “unfair” mistake. Moreover, he whines that WaMu was shut out from meetings between the Wall Street banks and Treasury and Fed officials:
The unfair treatment of Washington Mutual did not begin with its unnecessary seizure. In July 2008, Washington Mutual was excluded from the “do not short” list, which protected large Wall Street banks from abusive short selling. The Company was similarly excluded from hundreds of meetings and telephone calls between Wall Street executives and policy leaders that ultimately determined the winners and losers in this financial crisis. For those that were part of the inner circle and were “too clubby to fail,” the benefits were obvious. For those outside of the club, the penalty was severe.
As for Killinger’s contention that the government shut WaMu down rather than rescuing it because it was not running with the in-crowd: September and October 2008 marked the absolute height of the credit crisis. In the weeks after the collapse of Lehman Brothers, Fed and Treasury officials were concerned with averting utter economic catastrophe, not with punishing banks that weren’t part of the “club.” The statement is as absurd as it is tone-deaf. I will note that unlike most other executives testifying to Congress, Killinger does not use the words “sorry” or “apologize” even once in his 7,600-word testimony. (He does say he is “saddened” by what has happened.) He does not apologize to his shareholders, employees or the homeowners and average citizens who patronized WaMu.
And my sense is that in the coming week Killinger’s testimony will seem even more ridiculous. Levin’s committee’s report, due to be released in full on Friday, reportedly shows gross negligence and fraud at WaMu, which made hundreds of millions off of mortgage-backed deals before collapsing and spurring the “man-made economic assault” of the Great Recession, as Levin describes it in his blistering opening remarks.