Another whiney bank executive; WAMU “unfairly seized” and other tales from the crypt

Whining before congressional panels continues and this week’s all star whiner line up included former Washington Mutual (WAMU) CEO Kerry Killinger. Yes, WAMU holds bragging rights as the single largest bank failure in U.S. history.

One could surmise that poor risk management practices, greed, incompetent management and more greed created a failure of this magnitude ($19 billion). Not so fast buckaroos, as Kerry “killjoy” Killinger delivered another cryptic perspective on the massive failure.

Granpda is not making this up, the following is a cut and paste from his prepared testimony:

“As CEO, I accept responsibility for our performance and am deeply saddened by what happened.” And now, let the whining commence...

I believe that Washington Mutual’s seizure was unnecessary, and the Company should have been given a chance to work its way through the crisis. I also believe it was unfair that Washington Mutual was not given the benefits extended to and actions taken on behalf of other financial services companies within days of the Company’s seizure.

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.

In my view, the actions taken by policymakers reflect a vision of a banking industry dominated by large Wall Street banks. Consumer-based banks like Washington Mutual were not included in this vision, and consequently were not extended the same protections. I believe this was a mistake. I fear that consumers will ultimately pay the price of this vision through less competition, higher fees, and lower interest rates on their deposits.

Unfortunately, policy leaders were slow to recognize the deterioration in the housing and credit markets in 2007. In March of 2007, the Chairman of the Federal Reserve said that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” And in June of that year, Treasury Secretary Paulson predicted that the crisis in the mortgage markets “will not affect the overall economy.”

With the benefit of hindsight, there are many things Washington Mutual and the financial services industry could have done to better prepare for the worst economic downturn since the Great Depression. Washington Mutual aggressively reduced lending, raised new capital and cut operating expenses. But had we known that housing price declines of 40% or more would occur in the Company’s key markets, we would have taken even more draconian measures.

Thank you for your time, and I hope this statement and my oral testimony will contribute to the Subcommittee’s work.