On Sept. 25, 2008, Washington Mutual Bank, a $300 billion thrift and then the sixth largest depository institution in America, was seized by federal regulators and sold to banking giant JPMorgan Chase. It was the largest bank failure in U.S. history. And it was one of the seminal moments in the worst financial crisis since the Great Depression.
The decline and fall of Washington Mutual was the subject of a hearing I chaired this morning, one of a series of hearings on the causes and consequences of the financial crisis.
The Senate's Permanent Subcommittee on Investigations, which I chair, has been investigating the financial collapse for 18 months. By examining the failure of Washington Mutual, we will show that the crisis was not the result of the "invisible hand" of the market, or the fickle hand of fate.
This bank collapse was a man-made economic assault. From Washington Mutual's Seattle headquarters to the board rooms of Wall Street, people guided by greed and plagued by poor decision making brought about the crisis.
Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river. Unsatisfied by the profits they could earn from traditional home loans, the company in 2005 increased its involvement in what's known as subprime lending - extending mortgages to people less able to afford them, and charging them higher interest rates and fees that almost guaranteed they would default. After making these risky loans, Washington Mutual packaged them into securities that fed Wall Street's hunger for complex investments.
For a while, everybody made money. But the party couldn't last, and we all know what happened. When the bubble burst, Washington Mutual and other financial institutions who had placed these risky bets collapsed.
In the ensuing financial crisis, millions lost their jobs; millions lost their homes. Good businesses shut down. Financial markets froze, the stock market plummeted, and once valuable securities turned worthless. Storied financial firms teetered on the edge or went under. The contagion spread worldwide. And in October 2008, American taxpayers were hit with a $700 billion bailout of Wall Street.
Today's hearing showed how Washington Mutual's management helped bring about the crisis by pursuing short-term profits built on untenable risks, and by ignoring repeated warning signs that it was headed for disaster.
Over the next two weeks, additional subcommittee hearings will examine other causes of the crisis.
The issue has never been more critical. Soon, the Senate will debate new rules of the road for the financial industry to make sure the failures of this crisis aren't repeated. It is my hope that the subcommittee's work will help make clear to my colleagues and the public the need for robust reforms to protect Main Street from the excesses of Wall Street.
I hope you will follow our work, and that you will be as convinced as I am that the greed of so few should never again threaten the livelihoods of so many.
Mr. Levin should realize he's doing no more than thousands of bloggers have been doing in cyberspace for the last few years. I don't think he's going to get any more media attention than we have, either. As far as committee meetings go in effectiveness, one should remember what happened to Ollie North after his famous meetings that were actually on the tube: nothing, but Reptilian fame and fortune.
Chaos was always the plan, Mr. Levin. If you haul the bank$ters on the carpet, everyone from the business pages of The New York Pravda to the infotainment crew at Faux News will deplore you and impugn your motives. Be ready for it.