April 21, 2010: Just when I think I'm through dishing the United States of Real Estate, it pulls me back in. The show is old, but still too hot to ignore. In mid-April the Klown Execs From Washington Mutual (WaMu) reunited on a DC stage, wowing the Senate Permanent Subcommittee on Investigations with a blazin' rendition of their rap classic “Me So Greedy”. Icing the cake? When grilled by assorted legislators re the mortgage lending policies that by 2008 helped turn WaMu into the largest bank collapse in U.S. history, The Execs laid down their equally incendiary remix “Me No Recall”.
The show turned briefly sour when Kerry “Chief Exec” Killinger went all Kanye West and spewed a pile o' bile. Chief Exec accused the Clubby Crew (formerly the Wall Street Boyz) of cutting Seattle-based WaMu out of the big bailout that saved other players. Forcing WaMu to become a cheap pick-up for Wall Street homey JPMorgan Chase. When Chief Exec went into his spiel taxpayers in the C-Span house got restive. Tossing beer cans and shouting out “boo hoo, one less pig at the trough”. The scene was threatening to turn Woodstock circa '99 but thankfully, music hath charms. The savage beast chilled when The Execs rolled out their 2006 cover of Sir Mix-a-Lot's 1992 hit “Baby Got Back”.
As ya'll may recall, Sir Mix-a-Lot's seminal ode to humongous booty hammered home the refrain “I like big butts”. The Klown Execs' genius lay in changing the refrain to “I like big bucks”. Transforming the piece into a WaMu stadium anthem by metaphorically morphing ass(ets) into cash.
Seriously folks, among a passel of damning docs obtained by the Senate Subcommittee pertaining to Washington Mutual's housing bubble doings was an account of a 2006 retreat in Maui, Hawaii that WaMu tossed for its Presidents' Club-- the top earners from their Home Loan Groups. Entertainment included a skit wherein the Kauai Kick It Krew (a babelicious group manufactured for the moment) tossed play money into the crowd while rapping “I Like Big Bucks”. Lyrics such as “you just spends/like it never ends/cuz you gotta have that big new Benz” lathed the ears of loan officers who were cranking out the mountains of shoddy and often downright fraudulent “affordable” mortgages Wall Street was fudge packing into tranches of mortgage backed securities (MBS).
WaMu's motto was “The Power of Yes”. As in-- no wannabe borrower left behind. At an earlier retreat in 2004, WaMu's Chief Risk Officer James G. Vanasek told thousands of WaMu troops that the power of yes needed to be balanced by “The Wisdom of No”. His downer dropped like a stone. Some said Vanasek's career would be crushed. In the same year Vanasek allegedly went to WaMu's Chairman and CEO (which at the time would have been Kerry Killinger) proposing WaMu take out a full page ad in the Wall Street Journal disavowing the bizarro mortgage products and dodgy underwriting practices that had come to characterize the lending industry. The proposal took a quick trip to the void.
Imagine if Washington Mutual had run that ad in 2004! Everybody in Bubbleville, from flippers and refi gamblers on Main Street to traders and investors on Wall Street, would have gone ballistic. The National Association of Realtors? Die WaMu Die! Media barkers for the next hot city/nabe/brown field would have called WaMu mad. Or even worse-- old, white, and male. Assorted oversight entities, housing and finance officials, and hordes of pols and non-profits at national and local levels would have joined the angry mob. President Bush might even have grabbed a torch. In 2004, Dubya was pushing The Ownership Society. The power of yes ruled all over the place...
Sorry Vanasek u little whistle blower u. The Klown Execs knew the score. Silence was golden, golden.
In the Obama now, the power of yes plays on. To the tune of burgeoning taxpayer risk. Yes We Can support the mortgage markets (both lending and investment) to a greater degree than ever before. Not only via the hoary conduit of HUD and its sub, the Federal Housing Administration (FHA), but through the Federal Reserve and U.S. Treasury. Like, how mission creep is that? Yes We Can make Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) whose policies as mortgage buyers and MBS peddlers contributed mightily to the growth and collapse of the housing bubble, into real estate rescue machines. By the by, Fannie and Freddie were big buyers and movers of Washington Mutual product.
Back in Autumn 2007, New York State Attorney General Andrew Cuomo subpoenaed Fannie and Freddie, as part of an “industry-wide investigation” of mortgage fraud. WaMu was an institution of interest. In early 2008 Cuomo closed his investigation. Declaring the culprit of housing bubble bad was “rampant appraisal fraud”. Though Cuomo claimed banks pressured appraisers to inflate values in order to “make a quick buck” he didn't name the quick buck banks. Nor did he mention his earlier allegation that since Fannie and Freddie profited from inflated values through sales of MBS, they might have been in on the quick buck.
In September 2008, Fan and Fred went into crash mode and were taken over by the federal government. The remains of WaMu filed for Chapter 11 around the same time. (JPMorgan Chase had already absorbed most of the body.) Fannie and Freddie's bailout cost taxpayers more than that of any other institution. As 2010 dawned the U.S. Treasury pledged yet more love; three years of unlimited financial support for Fannie and Freddie in their role as mortgage market rescue tools. Baby got back indeed.
Much of the mortgage market rescue falls under the aegis of the Troubled Asset Relief Program (TARP). TARP's special inspector general, Neil Barofsky, delivered a riveting rap about the rescue in his 01/30/10 report to Congress. Section 3, “Federal Support of the Residential Real Estate Market”, laid out the drift of the U.S. housing market into nationalization and the concurrent growth in taxpayer risk. Barofsky's whistler blower words got airplay but never quite made top of the chart. Maybe 'cause Health Care was hogging the slot. Or maybe when it comes to real estate, silence is still kind of golden.
Carola Von Hoffmannstahl-Solomonoff
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