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Washington Mutual Hearings Leave Questions Left Unanswered

Carolyn Beeler

Former Washington Mutual executives spoke publicly yesterday for the first time since the Seattle–based bank's collapse. Risk management officers testifying before a senate subcommittee hearing in Washington, D.C., painted a picture of a company driven by soaring profits to make risky loans. But former WaMu President Kerry Killinger defended his company's actions and said the bank could have survived. "Washington Mutual should not have been seized and sold for a bargain price, but should have been allowed to work its way through the financial crisis", says Killinger. Even after the virtual silence of top executives ended yesterday, there are a lot of questions still unanswered.


The Senate investigation revealed that WaMu executives knew they were selling fraudulent loans as part of mortgage–backed securities. And they continued to do so, even when Killinger said he knew we were in the middle of a housing bubble.

But some say the testimony from bank executives doesn't answer the central question in the WaMu saga: Why WaMu?

Hess: "I was surprised that Washington Mutual failed. I thought they had sufficient capital to weather the storm."

Alan Hess is a finance professor at the University of Washington.

Hess: "But remember, they had enough capital, unless their credit losses soared. So what an outsider like you or me doesn't know is how many bad loans are yet to be declared bad loans."

Because the people who actually shut down WaMu operate in secret, Hess says there's still a lot we don't know. And we won't know, at least for a while.

Hess: "The regulators have never said why they closed Washington Mutual, and they never will. So we don't know. Let's do by comparison. There was a bank in Tacoma that was recently taken over. It had a really nice name like Rainier Pacific. It's capital ratio was, oh like 1 percent. But as I recall Washington Mutual's was above the requirement and they were still taken over. It's a bit of a puzzle."

Hess says, in a perfect world, stock holders would always know what regulators know. It could prevent the kind of risky lending he says WaMu engaged in before it was taken over.

Hess says he hopes the series of lawsuits that are already under way will bring the regulator's actions into the public record.

Ben Broussard worked for WaMu in Seattle for about five years. Killinger's testimony reinforced Broussard's belief that the Seattle bank was treated differently than East Coast banks during bailouts. Broussard says he thinks WaMu wasn't protected like other banks, but the hearing didn't tell him why.

Broussard: "I would like to know why Washington Mutual was seized and why it wasn't afforded the same opportunity to remain a viable institution as 98 percent of the other institutions were. Of their size."

Broussard says he hopes his questions are answered this Friday. That's when representatives of the regulatory agencies have their turn before the senate subcommittee.

For KUOW News, I'm Carolyn Beeler.

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