Something's not right here. I've been assured by numerous conservative columnists and radio pundits that the Community Reinvestment Act forced these banks, sometimes at gunpoint, to give loans to brown-skinned people who could not afford them. Now this article alleges that it was actually unfettered greed, blatant corruption and a "wild west" environment encouraged by lax regulation of the mortgage industry? I'm confused.

And not a one of these WaMu clowns will go to jail, right?

Blaming the Community Reinvestment Act for the subprime mortgage mess is an outright lie. The CRA has been around since the 1970s and it does NOT require banks to make loans to minorities or to anyone with bad credit or dubious sources of income. What it does require is that banks lend in the same communities where they accept deposits. So if banks open deposit branches in Chinatown or Harlem or Flint, Michigan, they are required to lend within those communities, CONSISTENT WITH SAFE AND SOUND BANKING OPERATIONS. In other words, the borrowers in those communities have to meet the same credit guidelines as any other borrowers. The CRA does not in any way require banks to make bad loans to minorities. Subprime mortgages didn't explode until the 21st century, and only because there was a huge market for them. As long as investors continued to buy the loans, banks were thrilled to be making them. The subprime mortgage collapse was all about greed, and anyone who blames the CRA is either ignorant of the facts or a liar.
http://www.nw.org/network/policy/CRA.asp

Don't forget this simple fact: WASHINGTON MUTUAL ONLY SOLD LOANS THAT WALL STREET INVESTORS WERE WILLING TO BUY!!

There are laws that suppose to protect the public from this, as there are laws that can prosecute a loan applicant for filing false information on a loan applicant.

So yes, both can be prosecuted through/under Hud, Humda, Respa.

The protections in place just fail through the cracks due to deregulation. All are at fault - loan officer (originator), loan processor, loan underwriter, appraiser (most banks use automated appraiser/drive-by instead of physical appraisers), shipper (which does funding & insuring the loan) and escrow - no funds are dispursed until it clears escrow.

However, one must note, the wholesale account executives created a culture of corruption. The wholesale account executive (yes, it could be from WaMu) goes out to smaller mortgage lenders, treat the staff to lunch and offer an extra commission (they call it rebates)to sell certain loan packages.

Oh, let's not forget Rapid Re-score - say you have some derogatories on your credit report, this could be temporarily fixed sometimes to hike the score for say, maybe a better loan!

So yes, I don't tink they'd be able to find enough prisons to put these people in.

Don't forget this simple fact: WASHINGTON MUTUAL ONLY SOLD LOANS THAT WALL STREET INVESTORS WERE WILLING TO BUY!!

And that rating agencies were willing to rate AAA, and that the Bush Administration refused to monitor

and that were, in many cases, fraudulent. Of course, no one on wall street cared enough to dig below the cursory level of WaMu saying these loans were good, so that's a failure of due diligence.

And, WaMu being one of those entities that is too big to fail, we are bundling these crooks into an even larger entity and we punish no senior manager for their misdeeds. The end result is that the innocent are blamed, the guilty are rewarded, and the system is changed to make the rinse and repeat cycle easier.

You need to understand that the main problem with the WaMu business plan was that they didn't execute it well.

If WaMu had paid huge fees for the risky loans and sold them for even bigger fees when they bundled them and sold them as AAA rated bonds then WaMu would still be in great shape.

The problem, from WaMu's point of view, was that they decided to keep some of the mortgages. Don't forget that WaMu probably kept a lot of the assets that were the best. Of course, they also had some papaer that Wall Street wouldn't touch.

BUT THE BIG PROBLEM was that Moody's, S&P and Fitch rated the crap as AAA. The rating agencies are the IDIOTS who allowed the mess to take place.

I think they should go to jail. WaMu was playing by the rules and just didn't perform well. Moodys and S&P wrote the rules that caused the mess.

The problem is systemic and is as old as civilization.

With rare exceptions our so called 'leaders' operate primarily for their own interests. The clever ones rise to high positions... the not so clever end up as pimps and pushers.

I read an interesting piece of web journalism about a consultant who specializes in predicting decisions by business and government leaders. His track record is phenonemal and he commands megabucks from his clients.

While he [apparenty] uses a secret and sophisticated matrix of data, computer analysis (etc.) to make his predictions, he did reveal the underlying philosophy behind it all.

Leaders act in their own interests. Recognizing that, you can toss out a lot of the 'fluff' about shareholders, national goals (yada) and focus on figuring out what decision will benefit the bloke in power... you won't go wrong.

Sad but true.

One of my family members worked for WaMu in California. He told me that senior loan officers were pushing poorly secured paper as hard as they could and jamming their 401(k)s full of WaMu stock (because the joy ride was going to last forever!). These people were all but wiped out by the Chase takeover. My relative says he's glad he diversified instead of following the advice of the "older and wiser" to climb aboard the gravy train. Weird story. (Chase kept him on after the takeover and he has more seniority now after the purge of upper management.)

One of the best descriptions of the Bush/Cheney Regime I've come across.

"the structure within which he's working is not set up well enough to prevent him from doing so. The less charitable description is: he looted the company." (AKA America)

Oh, I know exactly how the whole rating thing came down: the financial engineering elves in the back room dumped a whole bunch of dodgy debts into one bag, added 20 pages of caveats and "only works on a rainy Thursday and when the moon is full", handed the bag over to the front office elves, who promptly tossed the 20 pages of restrictions in the wastebasket, stamped "AAA" on it, and sent the whole schmeer out to the sales goons, who proceeded to offload the mess on your company's pension investment clowns.

Welcome to Modern Finance, everybody. Where random walk theory and Gaussian distributions rule the world and correlations never go to one.

Well, all this is second-hand, so take it with a grain of salt. That said...

My mother was a real estate agent (before she got out of the business through a combination of realizing it was a bad idea and getting swindled by crooks the regulators had no interest in restraining*) and four years ago she was warning me about this. "The real estate bubble has to burst eventually," she'd tell me. "The banks are making deliberately bad loans," she'd say (especially about the now-infamous NINJA loans). "Gonna be worse than the dot-com bubble," she'd add. And yes, she'd kvetch (I mean that in the best possible way) about the corrupt and flatly illegal kickbacks. IANAL, but the way she tells it, and the way she's been telling it for years, there's no ambiguity on this: kickbacks like WaMu's are unambiguously illegal. But the regulators didn't care. Neither did any prosecutors until recently. Now all of a sudden they're asking her to help them build a RICO case (not against WaMu, just to be clear). Funny that on the timing.

* I don't mean 'technical' restrictions here. I'm talking full-on fraud, money laundering, witness tampering, and racketeering. It's UGLY.