WaMu CEO Compares Mortgage Meltdown To The Great Depression

WaMu announced today that they lost $1.14 billion in the first-quarter and CEO Kerry Killinger said that nothing of this scale had happened “since the Great Depression.” Comforting!

“Nothing of this scale has happened since the Great Depression,” Chief Executive Kerry Killinger said at WaMu’s annual meeting. “This is the toughest credit cycle I have seen in my years in the industry.”

WaMu says it will cut 3,000 more jobs, including that of Mary Pugh, chair of their finance committee who “had been fiercely criticized for failing to protect Washington Mutual from overexposure to subprime and other risky mortgages,” according to Reuters.

A Loss and a Shake-up at Washington Mutual [NYT]
(Photo:Maulleigh)

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  1. tricky69 says:

    Exaggerate much.

  2. laserjobs says:

    Who could have know if the masses are given to much leverage on debt they can not afford to pay back a depression ensues?

    Oh yeah, history has told us this time and time again for over a thousand years.

  3. lefty_redhead says:

    Bonuses will not be tied to massive losses? Finance chair fired for not doing her job? One more example of a big corporation making smart decisions may signal the end of the world.

  4. Snarkysnake says:

    Another startling parallel to the Great Depression…WAMU executives changed the bonus formula for the company to ensure that the upper crust doesn’t feel any pain. Their bonuses will be paid just as always.Meanwhile,the 3000 employees now walking the plank will get a nice new appliance carton to live in as they are shown the door by security guards.

  5. ironchef says:

    WAMU is pretty guilty for writing lots of no doc loans when the economy was good.

    They quoted to a friend of mine for a no-doc loan with a sickening $7500 loan processing fee. As long as they paid the fee, the loan was theirs.

    Looks like they need some reform on looking the other way.

  6. humphrmi says:

    Woo-hoo!

    Oh, sorry.

  7. CaptRavis says:

    I think he meant to say nothing of that scale has happened since last quarter which was a loss 1.87 billion. At least he found a scapegoat in Pugh.

  8. KarmaChameleon says:

    Nah, I don’t think we’ll really hit Great Depression status until the trifecta’s complete. Student loans are crumbling and credit cards are not far behind.

  9. spinachdip says:

    @tricky69: Not really.

    And the capital markets were nowhere near this interconnected and sophisticated in the 1930s (or for that matter, the 1990s).

  10. nybiker says:

    I don’t know how much they have promised to pay for it, but they recently (ok sometime last year) paid for the naming rights to what had been the Theater at Madison Square Garden here in NYC. It used to be known as the Felt Forum. Of course, I am old enough to remember those days. Anyways, this is just another example of hooker/john problem when it comes to naming rights. Good thing I avoid as best as I can any company that is a hooker or john.

  11. humphrmi says:

    OK, seriously though:

    Nothing of this scale has happened since the Great Depression

    Then…

    This is the toughest credit cycle I have seen in my years in the industry

    These two statements don’t add up. It only demonstrates Mr. Killinger’s inexperience in the banking industry’s C-suite. Just because “nothing like this has happened that I remember” does not mean “we’re in a depression”.

    He’s basically trying to blame his failed management strategy on a deep downturn in the market. And it only makes it worse for everyone else because then someone hears him say “Nothing of this scale has happened since the Great Depression” and runs off to their broker and says “My god, we’re in a depression, sell!” further feeding the cycle.

    I’m not saying it isn’t bad, it is. But seriously, we’re nowhere near the sort of disaster that happened during the Great Depression, and the fundamentals just aren’t there either.

    I think the Fed should stop trying to tinker with rates and currency supply and simply forcibly gag every CEO who screams that the sky is falling. Then the market might actually stop riding this roller coaster and get back to normal.

  12. HaloZero says:

    It’s not my fault, its the economy! WAmu screwed itself.

  13. Concerned_Citizen says:

    I don’t get it, if these companies would just let people keep their low interest rates, couldn’t all of this had been avoided?

  14. tricky69 says:

    @spinachdip: And yet they are the one’s that created the situation.

  15. katewrath says:

    I highly recommend William Manchester’s “”The Glory and the Dream” — it’s an awesomely readable narrative history of America in the 20th Century.

    It opens at the dawn of the Depression and many of the preconditions Manchester describes are present today. Actual buying power of the middle class had been diminished over the previous two decades while the top 1% padded their pockets. Everyone was wildly over-extended and buying on credit to either maintain a standard of living or attempt to become even more ridiculously wealthy. Corporate oversight had not only failed to prevent mismanagement, but had actively destroyed the customer base for consumer products by laying people off and/or paying them a pittance.

    Have I mentioned recently that, adjusted for inflation, the average American’s income has actually declined since 1976?

    And we wonder why people buy things on credit. It’s not that they’re greedy — they’re just assuming they should be able to maintain the same lifestyle as their parents. Nobody told them we were entering a thirty-year-long shafting.

  16. Black Bellamy says:

    Kerry Killinger is a pussy. A gutless pussy. Ooooh, Great Depression, ooooh! Grow some balls!

  17. I’m not sure what’s worse – this guy’s hopeless excuses for his company’s failures or his blatant disregard for making ethical, reasoned statements about the economy.

    The degree of dislocation and horror in the Great Depression were relatively unprecedented (1897 was arguably worse in the US, but not nearly as global). Intimating that the liquidity issues that banks are working through will create a similar event is as irresponsible as driving drunk. It also appears to play to some base desire in the media to hearken back to those Yellow days in the name of some pageviews, but hey – we’re in a Great Depression! Meg has to buy fried dough and patch her Hooverville tent!

  18. @spinachdip:

    Come on. This is a mild recession. What evidence is there to the contrary that this is any different than previous occasions? Banking may be the wounded industry this time, but it’s not like liquidity contagion hasn’t happened since 1930. We already went through this in 1998, and 1987. Stop stockpiling beef jerky and relax.

  19. spinachdip says:

    @ADismalScience:
    I’m not trying to be all chicken little here, but previous crises have been mere bursting of the bubble and subsequent correction (dot com bubble, for one), a shift in the business landscape (shift away from manufacturing in early 90s) or a contained fallout (S&L, Long Term Capital Management).

    I’m getting that this isn’t simply a credit crunch, but a crisis of confidence in the capital market, which we haven’t seen in earlier recessions and corrections.

    Which isn’t to say this is the second coming of the Great Depression. It’s probably closer to the Asian banking crisis of the late 90s.

  20. camille_javal says:

    @laserjobs: Yeah, apparently banks used to *deny* loans to people sometimes for that very reason. Shocking.

  21. dweebster says:

    Brother can you spare a dime.

    I don’t think it’s very exaggerated at all. In the ’30s working people didn’t have easy access to all the credit cards, student loans, wildly inflated home values, etc upon which the present economy rests. Real wages for most people have been flat or worse for years, and with the war and gas prices the housing bubble was overdue to finally burst. What kind of working person can truly afford a half million “working class” home on $20-40/hour combined income?

    And with Sears seemingly on the brink of bankruptcy, where will all the appliance boxes come from for the “Clinton/Bush Towns” that’ll likely be popping up around the country in due time?

  22. dragonfire81 says:

    You’ll forgive me if I have little sympathy. The banks did this to themselves.

    “Let’s loan a bunch of money to people with bad credit and see what happens.”

    Surely it must have crossed someone’s mind at some point that a lot of these people would never be able to pay off the loans.

    It was a very stupid, avoidable risk if you ask me. Now the whole country is paying for it.

  23. Tallanvor says:

    For WaMu, the situation really is bad. My father has been a loan officer with various banks for around 30 years. I asked him last weekend what bank was going to fail next, and guess who he pointed the finger at.

    Luckily for him, the bank he’s at didn’t get into the whole sub-prime mess, so nobody at his bank has to worry about losing their jobs.

  24. ohiomensch says:

    @Concerned_Citizen: This has been my question all along. So, if a person can afford to make a payment at say 4%, and bank raises interest to 7% making payment out of reach for the borrower, why is it the borrower’s fault? Couldn’t a lot of this mess been avoided by not raising interest rates to begin with? Or how about negotiating some kind of extenstion to the folks who cannot pay the higher rate?

    Its like with credit cards… if you can’t afford to pay, how is charging you more going to get the bank any money? I’m not talking about people with no intention of paying. I am talking about the people who make a “monthly payment” (every 25 days, when did a month become that short by the way?) who are late by a day and see their interest rate shoot up to 30% or more. It forces them into a situation they never intended.

    I don’t think we are in a depression, but this credit stuff is far from over.

  25. bohemian says:

    What the banks did they did to themselves. But it is combined with a falling dollar, three decades of stagnant wages, sky high food costs and unaffordable gas.

    The combination is really squeezing people. What these banks did is just making it worse.

    I think it is time for the govt. to step in and force some of these banks to lower rates back to the initial rate or take a partial loss on these loans and convert them to HUD based loans.

  26. RagingBoehner says:

    @ironchef: Why didn’t they say no?

  27. heavylee-again says:

    @CEO Kerry Killinger:

    It’s your fault. And we as customers and tax-paying citizens pay the price.

  28. Mr_D says:

    @bohemian: The problem with the goverment stepping in is that it breaks one of the fundamental ideas of contracts: that they can only be changed by the parties bound by them. If the goverment shows that it can and will step in at any time to modify a contract, they will be less likely to enter into them.

    While I agree that something must be done to correct it, it’s not good to fall into the trap of “something must be done; this is something; therefore, this must be done”. Creating incentives to refi a bad mortgage might be a better alternative.

    @ohiomensch: I agree – this pattern seems to repeat itself throughout society. Copyright infringement is a social problem – DRM is a technical solution. It won’t work. Defaulting on credit cards? Very few people willingly miss payments. A lot of them just forget. Or they bite off more than they can chew, because they have to have the latest and greatest fashions. It’s a social problem, and jacking up rates is a financial solution. It won’t work either.

  29. BigElectricCat says:

    There’s a rumor going around on the economics blogs that the Fed’s going to let one large bank fail, as an example to the others. The early opinion leaders seems to be WAMU, and I can’t think of a better candidate.

  30. @spinachdip:

    Crises of confidence in the capital markets comes in the same black bag as a recession. Every recession creates spiking defaults and sends waves toward the capital dykes of banking institutions. 1998 is the best parallel given that era’s credit contagion and the overbuilt real estate markets in Southeast Asia – the uniqueness here is that the origin of the distress is the US.

    The thing is, our currency isn’t pegged to another reserve currency, so there wouldn’t be a sudden dam-burst shock when currencies like the ringgit became instantly worthless. We don’t have the Japanese reluctance to write down assets, and have engaged in a rapid re-valuation process so that normalcy can return to capital lending at major banking institutions.

    The US economy’s relative freedom and size allows it to be uniquely suited to absorb defects in the credit system quickly and move on. We have already borne the brunt of the disaster and emerged on the other end from a banking perspective. Emerging market economies have continued to grow without US capital involvement, which means that there are limited fears of this crisis collapsing other economies. Commodity pressures will abate after other asset classes begin to appear more attractive (we’re nearly there) and you’ll start to see all these Great Depression 2.0 folks look increasingly disconnected from reality.

  31. vladthepaler says:

    Great picture for this one.

  32. azntg says:

    @vladthepaler: Yeah. I just noticed the subtle (and correct, if you ask me) tweak.

    Frankly, as a WaMu customer, I’ve never been more nervous to be an accountholder. In a controlled manner, I’m slowly bringing my business to another bank and a credit union. Don’t want to wait until FDIC kicks in.

  33. FrankTheTranq says:

    WaMu’s chief exec. has the initials KKK? Someone’s parents had an agenda.

  34. miss_msry says:

    @ironchef:

    The economy wasn’t good back then. It was all a house of cards based on extreme debt for people with no way to pay off that debt.

  35. S-the-K says:

    Wait! Wasn’t it WaMu that rejiggered the executive compensation plan so that the CEO, etc., still got obscene paychecks despite running the company into the ground?

    If it is a “great depression” for their customers, it’s still a “roaring ’20s” for the executives.