I'm slightly less impressed than Andrew Leonard is with the Seattle Times' two-part series on the extremely high crimes and misdemeanors of Washington Mutual. The pieces paint the executives at WaMu (quite rightly) as evil opportunists who threw risk-management to the wind and invented incentives for employees to hand out predatory loans to largely unsuspecting customers. That's a great, if too-oft told, story. What makes the WaMu story unique for the Seattle Times is that WaMu is (or was) a Washington state company. What makes it bland is that the Times refuses to place any blame on the hard-working Washingtonian rank-and-file of the bank, choosing instead to imply that all problems came from the top (outsiders!) down.  For instance:

[Fay] Chapman, the former chief legal officer, said she and some other WaMu executives "argued vociferously" against the shift, saying it didn't fit WaMu's traditional emphasis on lending mainly to its own banking customers.

But [Craig] Davis and other executives from American Savings "didn't want to give it up. It was what they knew how to do, and they made a huge amount of money on it."

[CEO] Killinger backed the push to generate more and more mortgages to be packaged and sold, allowing that to dominate the entire home-loan operation. WaMu turned again to California for its entree to the murky world of subprime lending, buying Long Beach Mortgage in 1999.

Though Long Beach was lucrative, some executives argued against the deal.

"It didn't fit our culture," [former Executive Vice President for Corporate Administration Lee] Lannoye said. "It's hard to say you're a 'friend of the family' when you have an entity like Long Beach that's making loans to people at higher rates than they had to pay because they didn't know any better. I didn't want to have to sit in front of a regulator and explain why an African-American borrower (from Long Beach Mortgage) was paying two percentage points higher than a borrower from WaMu."

First: It's admirable that there were people like Fay Chapman arguing against these moves at the time when these outsider, crazy, risk-taker executives were driving the business into the ground... though it's also convenient to learn about it now.

Second: Quoting Lee Lannoye in any manner that makes him look like an insider, when he retired from WaMu in 1998, is a little misleading and adds to the impression that there was a saintly, solid WaMu at one point that was corrupted by greedy outsiders. Lannoye was on the executive committee when WaMu first started offering option ARMs and testing the subprime waters. His anger -- which the Seattle Times has documented quite well in the last year -- is understandable but a little disingenuous.

Still, this isn't what annoys me. What annoys me is that the articles come very close to pointing out that it wasn't just the executives who were at fault, but that there may have been a complete ethical breakdown within the company. They come close, mind you, but then back enthusiastically down.  Emphasis mine:

[T]he company made it clear that it wanted its loan consultants to make a lot more loans — especially the riskier but potentially more lucrative ones.

The most direct way was by paying them more to do so. A compensation grid from 2007 — the same year Killinger told investors that WaMu was reining in its home-loans operation — shows the company paid the highest commissions on option ARMs, subprime loans and home-equity loans: A $300,000 option ARM, for example, would earn a $1,200 commission, versus $960 for a fixed-rate loan of the same amount. The rates increased as a consultant made more loans; some regularly pulled down six-figure incomes. [...]

In time, WaMu even began allowing low- or no-documentation option ARMs, piling risk on risk. The loose standards spread through the company like a flu virus.

"I don't think Killinger intentionally set out to cut corners," said one senior executive who spoke on condition of anonymity. "But he certainly created an atmosphere in which doing the easy thing rather than the hard thing was OK."

The trouble here is that either management made this happen or management allowed this to happen. In between, there's a gulf of responsibility gray areas. Sure, management sucks no matter what, but the questions of both initiative and execution are important. The met-with-the-customer loan officers who pushed complex, ultimately bad mortgage products (and responded to the incentives) seem to share some of the guilt with the made-the-loans-possible executives.

The further down the road we go after all of these bank failures (or non-failures, or rescues, or fuck-ups, in the case of WaMu), the more difficult it gets to clearly say that CEOs are the only bad guys. Bankers who made bad (for the consumer) deals in 2005 and 2006 can say they did so because the bank said they had to, but those years were boom years in the industry. It's hard to believe there weren't other jobs elsewhere that a loan officer with a conscience could have sought out.

I find it easier, and I'm sure many others do, to think that a millionaire like former CEO Killinger is a villain. When the villain is a loan officer making $80,000 a year with two kids and a mortgage himself, it's harder. But this piece and many like it suggest (though I haven't seen any that get right to it) that the folks on the front lines weren't just following orders when they pushed bad loans: they were benefitting from pushing customers into risky ARMs that led to individual, and now collective, financial trouble.

At WaMu, the shareholders and the employees have been devastated by the bank's fail-sale to J.P. Morgan Chase. Many of them deserve the Seattle Times' sympathy, but I find it impossible to believe that they all do. Someone -- and it wasn't Kerry Killinger -- had to physically hand borrowers the dotted line to sign on. Why haven't we seen some hard questions aimed at those folks?