I want you to close your eyes for a second. Picture
a birthday party, but not just a casual get together.
This is a centennial plus celebration. All right.
There is a massive cake sitting on a mahogany
table. The frosting is pristine. And there are
119 candles flickering away, generating that
kind of heat you can feel on your face. That
is a lot of candles. You'd need a fire permit
for a cake that big. Exactly. The room is filled
with history, generations of success. Everyone
is gathering around, they're taking a breath,
getting ready to sing happy birthday. I'm with
you. The guest of honor leans in, chest expanding,
ready to blow on the candles and make a wish
for another century of prosperity. And right
at that split second, boom, the front door gets
kicked off its hinges. Wow. Okay, that's a violent
image, but go on. The feds walk in. They don't
just crash the party. They seize the house. They
take the keys. They start putting price tags
on the furniture to sell to the neighbors for
pennies on the dollar. And they tell the birthday
boy to grab his coat and get out. And he's just
out. He's on the street before the smoke for
the candles is even cleared. It sounds like a
scene from a mob movie or, I don't know, maybe
a Greek tragedy, but you are describing literal
history here. This isn't a metaphor. I am. We
were talking about September 25, 2008. It was
the 119th anniversary of the founding of Washington
Mutual, the bank known to millions of Americans
simply as WAMU. And on that specific day, their
birthday, instead of a celebration, we got the
largest bank failure in the history of the United
States. It is a staggering story. And I think
because it happened right in the middle of all
the 2008 financial chaos, I mean, right when
Lehman Brothers was collapsing and AIG was melting
down, people sometimes forget the sheer scale
of the WAMU failure. It gets lost in the noise.
It does. We aren't just talking about a local
branch closing its doors. We're talking about
a Leviathan. So let's put some numbers on this
beast. How big are we talking, really? At the
moment it was seized, Washington Mutual held
roughly $307 billion in assets. They had $188
billion in deposits. Staggering numbers. To put
that in perspective for you, before WAMU, the
benchmark for a banking disaster in the U .S.
was the failure of Continental Illinois. That
was back in 1984. Right. I remember reading about
that. That was considered the Titanic of banking
failures at the time. Real unthinkable event.
Exactly. Continental Illinois was huge. It sent
shockwaves through the system. But the Wamuu
collapse dwarfed it. It was exponentially larger.
Wamuu wasn't just a bank. It was an entire ecosystem.
It held the savings of families, small businesses,
massive corporate accounts across the entire
country. And what makes this deep dive so fascinating
to me is the trajectory. Because for the longest
time, Wamuu wasn't this scary, toxic Wall Street
monster. He was the friend of the family. He
was the bank that wore khakis and polo shirts
while the other guys wore three -piece suits.
That was their whole brand. Approachable, local,
safe. So the mission for this deep jive is clear.
We have a stack of articles, court documents,
and old financial reports here. We need to trace
the arc of Wamuu. How did a local, friendly institution,
which was born quite literally out of the ashes
of a fire, grow into a subprime giant that ended
up burning down the financial house? It's the
ultimate question. And to answer it, we can't
just look at the panic of 2008. That's just the
final scene of the movie. Right. That's the explosion.
We need to find the fuse. Exactly. We have to
look at a fundamental shift in corporate philosophy
that happened decades earlier. We need to look
at aggressive expansion, at hubris, and at the
specific mechanics of the financial instruments,
the toxic sludge that Wamuu didn't just participate
in, but actively courted. So let's rewind the
tape all the way back. I mentioned born from
ashes, and I wasn't just trying to be poetic.
No, you were being historical. The origin story
takes us to the Pacific Northwest, Seattle. The
date is September 25, 1889. Okay, set the scene
for us. This isn't the Seattle of Amazon's fears
and grunge music we know today. Oh, far from
it. This is a frontier town that had just been
absolutely devastated. The Great Seattle Fire
had swept through just a few months prior. The
whole city. Pretty much the whole business district.
It destroyed about 120 acres of the central core.
The wharves, the mills, the banks, everything
was made of wood and everything was just gone.
So the city is black, charred, and smells like
smoke. Precisely. But there was this immense
energy to rebuild. You have to imagine the sound
of hammers and saws everywhere, this pioneer
spirit. But rebuilding requires capital. It requires
money. And in a burnt -down city, money is tight.
So a group of citizens gets together to solve
this problem. A classic American story. Right.
They incorporated the Washington National Building
Loan and Investment Association. That is a mouthful.
I can see why they eventually shortened it. Huh.
Yeah. Marketing wasn't the priority in 1889.
Survival was. But they wasted no time. Just a
few months later, on February 10, 1890, they
made their first home mortgage loan on the West
Coast. Wow. That's a serious claim to fame. The
very first home mortgage on the West Coast. That
establishes them not just as a bank, but as a
pioneer, a pillar of the expansion of the American
West. It does. And for a long, long time, they
kept things incredibly simple. They were a boring,
reliable engine for homeownership. In 1917, they
changed the name to Washington Mutual Savings
Bank. And I want to. Pause on that word mutual.
Yes. Let's unpack this. We hear mutual fund or
mutual insurance. But in the context of a bank
in the early 20th century, what does being a
mutual actually mean? How is it different from,
say, a Bank of America or a J .P. Morgan today?
It's a completely different animal. A mutual
bank is owned by its depositors. By the customers.
By the customers. There are no outside stockholders.
There is no ticker symbol on the New York Stock
Exchange. If you have a savings account there,
you are, in a very real sense, a partial owner.
So the guy depositing his paycheck from the lumber
mill is the boss. In a structural sense, yes.
And this dictates the bank's entire behavior.
The primary goal, really the only goal of a mutual
bank, is to keep the money safe and serve the
members. You aren't trying to hit a quarterly
earnings target to impress Wall Street analysts.
You're not trying to jack up the stock price.
You're not. You are trying to make sure that
when Mrs. Johnson comes to get her money in 10
years, it's there. Period. It sounds... Inherently
conservative. Risk averse. Extremely. You don't
gamble with the depositor's money because the
depositors are your neighbors. It aligns perfectly
with the slogan they used for decades. The friend
of the family. You don't bet the family's grocery
money on a high stakes poker game. You just don't.
It's not in the DNA. It sounds idyllic, honestly.
A bank that actually cares about safety over
profit. But we know this story doesn't end with
a friend of the family badge. Wamuu didn't stay
a mutual bank. No. And this is arguably the first
most important domino in the long chain leading
to the 2008 disaster. The critical turning point
was 1983. Wamuu demutualized. Demutualized. It
sounds like a painful medical procedure. I'm
sorry, sir. We have to demutualize you. It's
a corporate transformation that changes the soul
of the institution. They converted from a mutual
savings bank into a capital stock savings bank.
In plain English. They became a public company.
They issued stock. So the DNA changes. Completely.
You stop serving just the depositors and you
start serving shareholders. And shareholders
are a very different beast. Very different. Shareholders
want growth. They want returns on equity. They
want stock price appreciation. And they want
it now, not in 10 years. They want it next quarter.
Exactly. The incentives shift from safety first
to growth first. Once you are public, you are
on a treadmill. If you aren't running faster
than you were last quarter, investors punish
you. The stock goes down. So the sleepy local
thrift vibe is officially dead. They might have
kept the name, they might have kept the slogan
for a while, but the engine was swapped out.
It took a little while to wrap up, but yes, the
philosophical shift was complete. In 1984, they
reorganized again as a holding company. Washington
Mutual Inc., or WMI. This is a technical detail,
but it's important. Why is that so important?
It allowed them to separate the banking units
from non -banking units, giving them even more
flexibility to expand, to buy other companies,
and to diversify into riskier ventures. It's
a structure that lets you build an empire. And
expand they did. This brings us to the era of
Kerry Killinger. He takes the helm, and the strategy
shifts to what I call Pac -Man mode, just eating
everything in sight. Killinger is a fascinating
figure in this tragedy. He wasn't your typical
Wall Street shark, at least not in appearance.
He played the trumpet. He was affable. But he
had a vision for aggressive, almost predatory
expansion. The 1990s and early 2000s were defined
by this growth by consumption strategy. But they
didn't frame it as consumption. They had a much
nicer name for it, the White Knight. Right. The
white knight. This is when a company swoops in
to save another company that's maybe failing
or more often being attacked by a hostile takeover.
It's brilliant PR. We aren't conquering you.
We're rescuing you. Precisely. It allows the
acquirer to look like the hero while swallowing
up a massive competitor. And a prime example
of this, perhaps the most dramatic soap opera
of the era, was the saga involving Great Western
Financial in 1997. Oh, I looked into this. This
is better than daytime TV. So you have Great
Western, which was a huge thrift based in California.
And they were being targeted by a rival, H .F.
Amundsen & Co. Right. H .F. Amundsen was the
parent company of Home Savings of America. They
were the big dog in the yard, the largest SNL
in the country. And they launched a hostile takeover
bid for Great Western. And it was hostile. Oh,
it was nasty. Great Western's leadership did
not want to be bought by Amundsen. There was
bad blood, culture clashes, you name it. They
were desperate for an escape route. Enter WAMU.
riding in on a white horse, or maybe a corporate
jet from Seattle. Wamuu stepped in with a friendly
offer, a $6 .6 billion deal. Great Western's
board leaped at the chance. They effectively
used Wamuu to shield themselves from the hostile
clutches of Amundsen. And just like that, Wamuu
creates the nation's largest savings and loan
association. They effectively doubled their size
overnight by rescuing this company. But here
is the ironic twist that really shows Killinger's
ambition. Wamuu buys Great Western to save them
from H .F. Amundsen. Then just a year later in
1998, what happens? I love this part. It's so
cynical and brilliant. in a corporate raider
kind of way. Wamuu turns around and buys H .F.
Amundsen. It's incredible. It's like a fish eating
a bigger fish and then turning around and eating
the fisherman who was trying to catch the first
fish. They called it Project Grand Slam. That
was the internal code name. And it was a grand
slam. It solidified Wamuu's dominance in California.
They now own the two biggest competitors in the
state. They were suddenly a West Coast superpower.
But they weren't just looking West. They wanted
the whole map. They did. Their ambition was national.
They went into Texas by acquiring Bank United
Corp in 2001 to get a foothold. in the lucrative
Houston and Dallas markets. And then the big
one, New York. Then they set their sights on
the East Coast. They acquired Dime Bancorp in
New York in 2002 for $5 .2 billion. That gave
them a huge presence in the biggest financial
market in the world. They were everywhere. I
remember this era clearly. You'd see Wamuu branches
popping up on corners that used to be gas stations
or diners or other banks. It felt like an invasion,
but a friendly one. It did. But, you know, when
you eat that much that quickly. Purely from an
organizational standpoint, you're bound to get
a stomachache. That's a very fair analogy. Rapid
growth almost always comes at the cost of stability
and quality control. The integration of these
banks was messy. What do you mean by messy? You
have to remember, every bank has its own computer
systems, its own record -keeping methods, its
own culture. Smashing them all together in a
few years is a logistical nightmare. So messy
how? Are we talking about cultural clashes at
the water cooler or actual operational failures
that hurt customers? Actual painful failures
for customers. Take the Dime Bancorp merger.
There were widespread reports of account ownerships
being split from beneficiaries. So, you know,
your account suddenly isn't linked to your spouse
anymore. That's a huge problem. A huge problem.
Or the fleet mortgage merger. This one is notorious.
Loans would simply disappear. Disappear. Like
into the ether. How does a mortgage just disappear?
The loans were being serviced, the customer was
paying every month, but customer service reps
couldn't find them in the system. Imagine calling
your bank and saying, hey, I'm trying to refinance,
and they say, we have no record of you, but thanks
for the check last month. That is terrifying.
It's Kafkaesque. It undermines the very foundation
of banking, which is trust. Effectively, yes.
When you double your size overnight repeatedly,
your back -end systems, the plumbing of the bank,
can't always keep up. But the leadership didn't
want to slow down to fix the plumbing. No, they
had a vision. They had a very specific vision
of what kind of company they wanted to be. And
they didn't want to be a stuffy old bank. And
this brings us to the Walmart of banking. That
was Kerry Killinger's explicit goal. He was quoted
saying he wanted to do to banking what Walmart,
Starbucks, and Costco did to their industries.
Which means volume, ubiquity, and catering to
the everyday consumer. Low prices on every corner.
Exactly. He predicted five years from now, you're
not going to call us a bank. They wanted to be
a retailer. They wanted to cater to lower and
middle class consumers who were often ignored
or, frankly, looked down upon by the traditional
ivory tower institutions. And they really committed
to the retail vibe. I remember walking into the
branches. They did not look like banks. They
had a name for it. Acasio. Yes, the Acasio design.
They actually patented it in 2004. The whole
idea was to eliminate the physical and psychological
barriers between the banker and the customer.
So no teller windows with the bulletproof glass.
No, those velvet ropes. What do you call it?
The queuing stanchions. Right. None of those.
Instead, you walked in and there was a concierge
greeter, like at the Apple store or a nice hotel.
Concierge. In a bank. I know. The teller stood
at these circular podiums. It felt like you were
buying a pair of jeans, not depositing a check.
And that was the entire point. It was designed
to be disarming, to make banking feel like shopping.
If you make people comfortable, if you make them
feel like friends, they are more likely to buy
products. And their marketing reinforced this
aggressively. Oh, the commercials. They were
everywhere. The free checking campaign. I remember
those. They had those older, stuffy, suit -wearing
bankers laughing at the young, cool, wamoo rep.
It set up a clear us -versus -them dynamic. The
old guard versus the new, friendly face of finance.
It was very effective. It made people... feel
like wamu was on their side and then came the
slogan that in retrospect really defines the
entire era the power of yes the power of yes
introduced at the 2003 academy awards it sounds
so optimistic so empowering who doesn't want
to hear yes it's a great marketing hook it's
brilliant but if you stop and think about it
from a risk management perspective which is what
banking is supposed to be it's chilling why chilling
because in banking the most important skill the
thing that keeps you alive is often the ability
to say no Right. Can I have a million dollars
even though I have no income? The answer should
be a very firm no. Exactly. But the power of
yes was a corporate mandate. It was about approving
loans. It was about volume. It was about getting
people into homes, often people who had been
turned away by other lenders. This marketing
push wasn't just fluff. It reflected the rotting
core of their business model. They were pivoting
from being a safe depository to being a volume
-driven sales machine. That's it. And then, as
if that wasn't on the nose enough, we have the
Woohoo campaign. Oh, man. Woohoo. That was February
2008. February 2008. Oof. The timing on that.
It's just perfect in its awfulness. Just as the
fears of a financial crisis are rising, just
as the housing market is starting to shudder,
Wamuu launches a campaign trying to position
itself as an iconic brand people love. The commercial
featured people literally dreaming about banking
and yelling, woohoo. Which is a sound I can confidently
say no human has ever made when thinking about
their bank. Never. And interestingly, the search
traffic for Wamuu spiked 1000 % after that campaign
launched. But not for good reasons. Not for the
reasons they hoped. People were searching to
see if the bank was solvent, not because they
wanted to yell, woohoo. And a little trivia nugget
here. I read they originally wanted the slogan
to be woohoo, without the H, just W -O -O. But
they were worried about getting sued by Homer
Simpson. That's right, Fox and the Simpsons.
Which, in hindsight, was the least of their legal
worries. They were worrying about copyright infringement
while their entire balance sheet was catching
fire? Seriously. So on the surface, they are
the cool, friendly woohoo bank. But underneath,
the engine driving this thing had changed completely.
They weren't just taking deposits and making
safe loans anymore. They had moved into the danger
zone. The subprime zone. This is where the story
gets darker. This is where the friend of the
family becomes the retailer of risk. So how did
they get so deep into subprime? Was it just the
general market trend or was it a specific deliberate
choice? It was a very deliberate strategy fueled
by acquisitions. They bought their way into trouble.
In 1999, they bought Long Beach Financial. And
Long Beach was. Long Beach was a subprime specialist.
That's what they did. They dealt with borrowers
who had spotty credit histories, people who couldn't
qualify for a traditional Fannie Mae or Freddie
Macalons. And then in 2005, they doubled down
and bought Providium. A subprime credit card
issuer. That was a $6 .5 billion deal. What's
fascinating about the Providium deal is that
the credit card company's management had actually
been trying to move upmarket. Upmarket. Yeah,
trying to get prime customers with better credit
scores to stabilize their business. But Wamuu
bought them specifically to fill a hole in the
product line. They wanted those high yield, high
risk assets. High yield means high risk. Always.
In finance, there is no free lunch. If you are
charging 20 % interest, it's because there is
a very high chance you won't get paid back. But
the most toxic product in their arsenal, the
weapon of mass financial destruction, if you
will, was the option ARM. OK, we need to deep
dive on this because the option ARM is the technical
heart of this entire collapse. It sounds complicated,
but we need to break it down for everyone. What
exactly is an option adjustable rate mortgage?
Okay, so an option ARM is a mortgage that gives
the borrower a choice, an option in how much
they pay each month. Typically, you get four
options on your monthly statement. Four choices.
Okay. Option one, you can pay the full principal
and interest to pay off the loan in 30 years,
you know, like a normal mortgage. You can pay
the principal and interest to pay it off in 15
years, an accelerated payment. You can pay interest
only so the loan balance stays the same, you're
just treading water, renting the money, or...
and this is the trap option four, you can pay
a minimum payment. And that minimum payment is
the seductive part. That's the hook. It is. The
minimum payment is calculated at a ridiculously
low teaser interest rate, maybe 1 % or 2%. But
the actual interest rate on the loan might be
6 % or 7 % or even higher. So let's do the math
for the listener. Say I borrow $500 ,000. My
actual interest bill for the month is, what,
roughly $2 ,500? But the minimum payment option
says I only have to pay half $1 ,000. So I pay
the $1 ,000. What happens to the other $1 ,500
I owe? It doesn't disappear. It gets added to
the principal balance of your loan. It gets added
back on top. Right back on top. It's called negative
amortization. You make a payment, but you owe
more money the next month than you did the month
before. So after month one, your $500 ,000 loan
is now a $515 ,000 loan. That sounds insane.
Why would a bank possibly want that? If I'm the
bank, I want my money back. I don't want a larger
loan that the guy clearly can't pay. Here is
the accounting trick, and this is where it gets
really murky and, frankly, fraudulent in spirit.
On their books, Wamuu could record that deferred
interest, that $1 ,500 you didn't pay. as income.
As profit. As profit. They were booking profit
on money they hadn't actually received based
on the assumption that the borrower would eventually
pay it all back with interest. So their financial
statements looked fantastic. Look at all this
interest we're earning. But it was Fanta money.
It wasn't real. Precisely. And why would a borrower
take that deal? Because the initial monthly payments
were incredibly low. It allowed a family making,
say, $40 ,000 a year to buy a $500 ,000 house.
It kicked the can down the road. What was the
logic? The logic was, I'll pay the minimum now,
and in a few years, the house will be worth way
more, and I'll just sell it or refinance out
of this crazy loan. It relied entirely on home
prices going up forever. Correct. The entire
model was a bet on a perpetual housing bubble.
And the culture at Wamuu... Encouraged selling
these things. Encouraged is putting it very lightly.
There was immense pressure on sales agents to
approve loans. The verification of income and
assets, which used to be the bedrock of banking
practice, became an afterthought. These were
the liar's loans. They called them liar's loans
or in -enjo loans. No intem, no joe, or assets.
You basically just stated your income and it
was taken at face value. I read that they were
paying real estate agents massive fees just to
bring these people in the door. Yes, fees of
over $10 ,000 in some cases just for referring
a borrower. So let me get this straight. You
have a bank that is paying people to bring in
customers who can't afford to pay back the money
to give them loans with trick payments. And the
bank is recording the money they aren't getting
paid as profit on their income statement. that
is a perfect succinct summary of the disaster
they were essentially paying people to take their
money and as long as housing prices kept going
up the math sort of worked on paper if the borrower
couldn't pay they could just refinance or sell
the house at a profit Everyone wins. But housing
prices didn't keep going up. No, the bubble burst.
And when it did, the math stopped working instantly.
The borrowers couldn't refinance because the
house was worth less than the loan. They were
underwater. They couldn't pay the higher rates
because the teaser period ended and the payments
skyrocketed. What we call payment shock. The
bill comes due. The bill comes due. The recapture
of that deferred interest became impossible.
Default skyrocketed. And suddenly all that phantom
profit turned into very. very real losses. This
brings us to the unraveling. 2007 and 2008. The
party is starting to wind down and people are
looking very nervous. The cracks started showing
in late 2007. In December, Wamuu closed 160 home
loan offices and cut 2 ,600 jobs. That was a
huge signal to the market that the volume game
was over. Then in April 2008, they cut another
3 ,000 jobs and stopped wholesale lending, which
was buying loans from outside brokers. They were
trying to staunch the bleeding. They tried to
save it, though, right? There was a rescue attempt,
a big capital injection? There was. In April
2008, they secured a $7 billion capital infusion
led by TPG Capital. TPG, a major private equity
firm, put in $2 billion and other investors put
in the rest. They were trying to shore up the
balance sheet. $7 billion is a lot of money.
Why didn't it work? It was a bandage on a gunshot
wound. The losses from the subprime portfolio
were growing faster than anyone publicly admitted.
And this deal created a lot of friction. How
so? Well, for one, it diluted the existing shareholders,
meaning their slice of the pie got much smaller
and they were furious. And to make matters worse,
to add insult to injury, WAMU executives had
changed the rules so that mortgage losses were
excluded from their bonus computations. Wait,
wait, let me get this straight. The ship is sinking.
The shareholders are bailing water because their
stock is plummeting. And the captains are ensuring
their bonuses are calculated based on what? The
number of life rafts. Effectively, yes. They
excluded the very thing that was destroying the
company from the formula that determined their
pay. It was a massive, almost unbelievable governance
failure. It enraged the investors. And speaking
of captains, this is where Kerry Killinger finally
gets the boot. Too little, too late. Much, much
too late. In June 2008, he's stripped of the
chairman title. On September 8th, he's fired
as CEO. And they bring in the knee guy, Alan
H. Fishman. Poor Alan Fishman. He was named CEO
on September 8th. He was in charge for exactly
17 days. Talk about bad timing. He barely had
time to find the bathroom before the feds showed
up. But there is a subplot here involving another
bank, right? A bank that had been lurking in
the shadows for a while. JPMorgan Chase. Yes.
This is crucial for understanding the endgame.
Back in March 2008, around the time Bear Stearns
was collapsing, Jamie Dimon, the CEO of J .P.
Morgan, secretly sent a team to Seattle. They
called it Project West. Project West. They met
with Wamuu executives and offered to buy the
company for $8 a share. $8 a share, and Killinger
said. He said no. He rejected the offer flat
out. He thought it was too low. He thought they
could ride it out. He believed the power of yes
would somehow see them through. Spoiler alert,
they could not. Let's get to the final days,
the run. Now, when I think of a bank run, I think
of it's a wonderful life, people banging on the
doors, George Bailey trying to calm everyone
down, handing out dollar bills. Was it like that?
There were some lines and some branches, sure.
But in 2008, a bank run doesn't primarily happen
on the sidewalk. It happens on the server. It
was a silent run. Electronic withdrawals. Exactly.
Mid -September 2008. We are in the Lehman Brothers
era of panic. Lehman had just failed on September
15th. The entire financial world is terrified.
Whamu gets hit with a credit rating downgrade
and the floodgates open. So it's not mom and
pop pulling out 100 bucks. No, this is institutional
investors, corporations, small businesses and
savvy, wealthy depositors just going online and
clicking transfer. How much money left the building?
In just nine days, customers withdrew $16 .7
billion in deposits. 16. Ah. 16 .7 billion. In
nine days, that's nearly $2 billion a day just
vanishing into the ether. No bank on earth can
survive that. A bank doesn't keep all its cash
in a vault. It's lent out in mortgages and business
loans. When depositors demand $16 billion back
instantly, the bank becomes illiquid. It might
still have assets, houses, buildings, loan portfolios,
but it doesn't have the cash to pay the people
at the window. It's over. So we arrive at the
birthday, September 25, 2008. The end of the
line. The FDIC, the Federal Deposit Insurance
Corporation, had been watching this very closely.
They knew Wamuu was bleeding out, so they organized
a secret auction of Wamuu Bank. Who was invited
to this secret party? Very few institutions had
the capital or the stomach to swallow a bank
that size in that environment. Citigroup was
there, Wells Fargo, Banco Santander from Spain,
and of course, JPMorgan Chase. And the winner?
predictably, was JPMorgan Chase. The same bank
that offered $8 a share back in March, but the
deal they got in September was very, very different.
Okay, walk us through the mechanics of the seizure.
It happened on a Thursday night, which you've
noted before is weird. It is highly unusual.
Standard regulatory procedure is to seize a failing
bank on a Friday evening. You wait until the
doors close at 5 .00 p .m. It gives the regulators
the entire weekend to reconcile the books, switch
over the computer systems, change the signage,
and prepare to reopen on Monday morning under
new ownership so customers don't panic. But Wamuu
was seized on Thursday. Why? The run was so severe
and leaks about the imminent seizure were starting
to get out to the press. The regulators felt
they couldn't wait another 24 hours. They were
afraid that if they opened for business on Friday
morning, the run would intensify and drain whatever
cash was left. So they pulled the plug early.
They did. Shortly after the markets closed on
Thursday, the Office of Thrift Supervision, the
OTS, seized the bank. This is a bit of alphabet
soup. The OTS seized it. Yes, the OTS was their
primary regulator. They seized it. and declared
it failed due to illiquidity they immediately
placed it into fdic receivership and the fdic
immediately sold the banking assets to jp morgan
chase for how much 1 .9 billion dollars wait
1 .9 billion chase offered to buy them for eight
dollars a share back in march which would have
been what was the market cap then tens of billions
it was an astronomical difference but for 1 .9
billion dollars chase got all the branches all
the deposits and all the assets But, and this
is the crucial legal distinction that wiped people
out, Chase did not buy the holding company, Washington
Mutual, Inc. And they did not take on the unsecured
debt or the equity claims. Okay, this is where
it gets complicated for the shareholders, right?
Because usually, a company gets bought, the shareholders
get something. It may be a lower price, but something.
In this case, because the bank itself, the primary
asset, was seized and sold out from under the
holding company that people owned stock in, the
shareholders were effectively wiped out. The
stock price collapsed overnight to 16 cents.
From a high of, what, $45 the previous year?
That is a total wipeout. A total wipeout. And
the next day, September 26, Washington Mutual,
Inc., the empty shell that used to own a bank,
filed for Chapter 11 bankruptcy. So if I'm a
customer with a checking account, I wake up on
Friday morning, what happens to me? Absolutely
nothing. And that's the miracle of the FDIC system.
The branches opened, the ATM cards worked, your
money was safe. It was now guaranteed. Guaranteed
by the Fortress balance sheet of JPMorgan Chase.
The system worked exactly as it was designed
to protect the depositor. But for the investor,
the employee with stock options and their 401k,
the bondholder, it was a catastrophe. And that
catastrophe sparked a lot of anger. I've heard
about the Womoku theories. This wasn't just seen
as a normal failure. Oh, it's a deep rabbit hole.
There was immense fury from shareholders. They
claimed the bank was seized for political reasons.
They argued that the liquidity crisis was temporary
caused by the market wide panic and that the
bank actually had enough assets to meet its obligations
if the government had just given them a lifeline.
The lifeline like the one they gave to Bear Stearns
or AIG. That's the argument. That is exactly
the argument. Why was WAMU allowed to fail when
others were bailed out? There was a complaint
filed by an investment strategist named Mike
Stathis from AVA Investment Analytics. He filed
a complaint with the SEC alleging insider trading
and questioning the evidence for insolvency.
He even claimed a WAMU executive told an AP reporter
the seizure was happening for political reasons.
And the idea that JP Morgan got a sweetheart
deal. $1 .9 billion for a bank with that massive
national footprint. looked like the sale of the
century. Chase basically acquired a nationwide
branch network overnight for a fraction of what
it would cost to build it. They got all those
Ocasio branches, the massive footprint in California,
Texas, Florida and New York. But Chase would
argue they took on a lot of garbage, too. A lot
of risk. Right. They would argue they saved the
system from a $300 billion collapse that could
have drained the FDIC insurance fund. And Chase
did have to deal with the incredibly toxic mortgage
portfolio they inherited. They spent years and
billions cleaning up those option ARMs. So the
brand disappears. By the end of 2009, all those
Ocasio branches are Chase branches. The woohoo
is silenced forever. The brand was retired completely.
Chase closed hundreds of redundant branches,
especially in places like New York and Chicago
where they already had a presence. If there was
a chase across the street from a Wamuu, the Wamuu
closed. The friendly, khaki -wearing vibe was
replaced by the blue octagon of Chase. The legal
battles dragged on for years. This wasn't a clean
break. Oh, massive, ugly legal battles. Wamuu
Inc., which was now just the estate of the holding
company in bankruptcy, sued the FDIC for $13
billion. They claim the seizure was unjustified
and the sale price was a fire sale valuation.
Do they win? Not exactly. It was a complete mess
of settlements that dragged on for years. There
was also a huge fight with the IRS over $12 .5
billion in back taxes. In a bold move, Wamuu's
estate actually claimed the IRS owed them a refund
because of the massive losses they took. That
is bold. I lost so much money you should pay
me. Eventually, they reached a settlement where
a refund of about $5 .7 billion was shared among
the various parties and creditors. But the bankruptcy
itself was a saga. Judge Mary Walrath in Delaware
rejected multiple reorganization plans. She was
very concerned about insider trading allegations
involving hedge funds that were buying up the
debt and trying to control the process. It was
a mess all the way down. It seems like even in
death, Wamu couldn't escape the drama and the
questionable behavior. It eventually emerged
from bankruptcy in 2012 as WMI Holdings Corporation.
It was a shadow of its former self, essentially
a shell company looking for a purpose with some
tax assets. And where is it now? Does it still
exist? In 2018, WMI Holdings merged with NationStar
to form the Mr. Cooper Group. Mr. Cooper, a large
mortgage servicer, a far cry from the friend
of the family or the Walmart of banking. It's
an almost generic anonymity now. The final ghost
of WAMU. So what does this all mean? We have
looked at the history, the rise, the hubris,
and the spectacular fall. When you look at the
entire Wamuu story, what is the big takeaway
for you? For me, I think Wamuu represents the
danger of losing corporate identity. They completely
forgot who they were. They started as a mutual
bank, a safe harbor for local savings. Their
purpose was clear. Protect the money. Safety
first. Safety first. Then they tried to transform
into a high growth retailer of risk. They wanted
the stability of a bank with the growth of a
tech stock and the ubiquity of a coffee shop.
You can't be all those things at once without
cutting corners. And the corners they cut were
the ones that mattered most, underwriting standards
and ethics. It really is a story of hubris. Killinger
wanted to disrupt the industry. And he did, just
not in the way he intended. He proved that you
can build a massive empire on yes, but it collapses
just as fast if the foundation is rotten. And
it serves as a stark reminder of the fragility
of confidence in banking. $300 billion in assets
didn't matter when the confidence evaporated.
119 years of history was erased in nine days.
That is the thought I want to leave everyone
with today. The power of yes built the empire,
but the inability to say no to bad loans, to
risky expansion, to the lure of quick, easy profits
destroyed it. It makes you wonder about the institutions
we trust today. Is your bank a friend of the
family, looking out for your savings? Or is it
a retailer just looking to sell you the next
product, whether you can afford it or not? It's
a question worth asking every time you walk up
to the teller window. Or, you know, the concierge
podium. Exactly. Thanks for diving deep with
us today. My pleasure. It's a fascinating and
cautionary tale.