Why WaMu failed
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You can make these things complicated, or you can make them simple. I’ll make this one simple. Washington Mutual failed not because of a credit squeeze or a crisis of confidence or because it participated in esoteric investment vehicles.
It failed because it made thousands -- tens of thousands, maybe hundreds of thousands -- of really stupid decisions. The weight of those boneheaded moves sunk the bank.
Let me highlight one, courtesy of Bubble Info, a San Diego real estate blog I like. The blog shows a small, poorly maintained house marked with graffiti inside and out. A couch sits on the front patio. From Bubble Info:
WaMu refinanced this 1,500sf house in City Heights just over a year ago -- when it was obvious that the market was in trouble, and the smarter banks should have been reeling in their lending practices. The owner paid $83,000 when he bought it from Home Savings in 1995. WaMu loaned him $449,000 in June 2007. It’s now being offered as a short sale -- for $140,000!
Two cents: The loan was made in June 2007, after the subprime collapse. Sorry folks, but this is a form of corporate suicide.
Hat tip: Calculated Risk originally highlighted this story.
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.Photo credits: Los Angeles Times (above), Bubble Info (below).