Ex-WaMu Chief Blames Regulators for Thrift's Failure

Former Washington Mutual CEO Kerry Killinger on Tuesday blamed federal regulators and an insular Wall Street culture for the demise of the mega thrift, saying that firms that were "too clubby to fail" were protected during the financial crisis of 2008. The Seattle-based thrift, once the nation's largest, was a top-ranked subprime and payment-option ARM lender. Last decade, it grew rapidly by purchasing prime and nonprime shops, including A- to D lender, Long Beach Mortgage, a firm controlled by subprime magnate Roland Arnall. Killinger, in prepared testimony before the Senate Homeland Security and Governmental Affairs Committee, complained of "unfair treatment" of WaMu, the largest thrift (or bank) failure in history in 2008, when it was seized by the government and then sold to JPMorgan Chase. Killinger, who was forced out prior to the JPM sale, argued that the seizure "was unnecessary" and said the company "should have been given a chance to work through the crisis." However, committee chairman Carl Levin said the thrift's subprime loans were rife with fraud and may make a criminal referral to the Justice Department. Levin is holding four hearings on the financial crisis. Based on an 18-month investigation, Levin said, he believes that certain provisions of pending financial reform legislation, such as the creation of a consumer protection agency and a requirement that lenders maintain a stake in loans they sell to the secondary market, could have helped avoid, or lessen the impact of, the thrift's failure. "A lot of proposed reforms will gain additional support, we believe, from these findings," Levin said. "It is my hope that these hearings, these findings, give a boost, a momentum to strong regulatory reform in many, many different ways."