"wall street journal" reporter kirsten grind examines the largest bank failure in u.s. history. for talk is just over one hour. [applause] >> it is so wonderful to see a great crowd here in one of america's great public libraries and a reminder of why the comments are so important. and to welcome my friend, kirsten grind, that to seattle again. sorry there is no big bank failure today to cover. >> but lovely weather. >> well i am from phoenix, and the sunny days make me depressed that i will get by with it for now. [laughter] kiersten's book "the lost bank" is a must-read if you want to understand not only what happened to washington mutual

which was a huge, for the city, a trauma that continues to reverberate, but has much broader policy implications for what happened in the great recession and help banking contributed to the meltdown. there were times when your book reads like a thriller, but after one of those thriller teases, we don't start out with wire loans and we don't start out with any of the things that one would think. we start out with a guy named luke pepper. why is that? >> well, luke pepper was one of the ceo during the 1980s and i thought it was very important to start out with luke because he represents a time in the banking system that has been lost. he represents a time where banks were much smaller and they were very customer focused and

community friendly and known as a friend of the family as i'm sure a lot of you here now. luke pepper really infuse this bank was such an amazing culture. it was just widely known across the region as a great place to do banking. it was terrific for employees who work there. it was terrific for customers and then all that began to change. >> well, everybody has these blind spots and something that he would come to rue was when he bought a small smoke -- spokane broker-dealer and somebody who came with debt deal and maybe want to tell us about about that a a little bit. >> so in walks to lou pepper's office in the 1980s this young guy who was about 31 years old and and a stamos kallinger. he was as sharp as a tack.

he knew everything about financial reporting. he had run these really well performing mutual funds and literally everyone at the bank was just sort of in awe about his knowledge and he really became his protége. so when it was time for live to sort of pass the bank onto someone else it made a lot of sense that he would pass it onto carried kallinger in 1990. at that time, we should say wamu was still a very small regional thing. lou had done a terrific job growing it but it still only had about $9 billion in assets and no one outside of seattle had ever heard of it really know. >> and at the same time, when most people think of this carried kallinger they grew to no, that is not the person that we get to know at first. i was fascinated by the background that you painted. the last guy in the world that you would expect to be a stiff

tanker or a risky bank for. >> absolutely. this was the very humble guy from iowa. he had this very classic sort of growing up childhood where people -- and he married his high school sweetheart. he met her in the band. he put himself a state school. he was very humble, very ethical, very buy the book and just very nice. he was also extremely awkward i should say. he was just much more comfortable looking at financial reports, but there was nothing crazier or unusual about him. >> except he was a trumpeter. >> except he was a trumpeter. [laughter] and sometimes he would play the trumpet at work. that was perhaps a little bit strange but not for one of because they a very quirky fun

culture. he was one of the only ones in his family who was not an actual musician. he was a musician but not -- [inaudible] >> he went on an acquisition spree for at least thrift was pretty awesome. why don't you tell us about that? >> absolutely. kerry kerry took over this very small bank in 1990 and he had this fabulous team of people surrounding him. that lou pepper had also chosen and together they worked like clockwork. they steamrolled across the west coast and across the country buying banks left and right and this was during the merger and acquisition spree of the 1990s so there was a savings and loan crisis on. wamu was able to take advantage of that and buy up a lot of smaller banks so they grew rapidly through the '90s and

by the end of the decade, they have become the countries largest savings and loan bank across the country. carey killinger have become america's favorite anchor. everyone loved wamu and everyone loved carey killinger and they could do no wrong. it also created this concept that we all know now although it's now going away which is free checking accounts. you could go to wamu and not have to pay any of those annoying fees that you paid to other banks and they essentially forced the force the other banks to follow suit. so they were just the most popular company anywhere. >> you now they were very good at some of the hard things in a financial services acquisition, merging computer systems. they would do it over a weekend. tell us a little bit about that. the customer would not even feel anything monday morning. >> absolutely. so we don't think about these things. we just think of our bank is a

bank really but when they buy another bank it's a really complicated and terrifying proposition because you suddenly have to banks. you have to combine all the systems than they do it very quick he so that customers don't notice. wamu is expert of data and that was the key to any bank that is trying to make all these acquisitions. they were able to do this in a way that the customer would not notice. i mean this was a bank that was very efficient. at really anything they did. when they came in, these other banks, they were very frugal. they took away all the corporate credit cards, all but dead planes. they took away you know, these other bankers would have these outlandish bank accounts and you know office is decorated like the wild west with lots of expensive trappings and high-rise office buildings. one that came in and got rid of all of that. they were very frugal. >> at least at that point.

>> at that point. again we are still in the '90s. >> right but there was this kind of again, almost like a thriller, there was this foreshadowing and it was this small lender called long beach mortgage. >> long beach mortgage was the very tiny lender near disneyland in california. >> maybe could give us a sense of the asset size just the people can understand how this should not have meant anything and yet it ended up being quite consequential. >> it was a tiny fraction of the assets of the last acquisition that wamu did. i mean a very small asset. an afterthought. this company made sub-prime loans that make mortgages to people whose credit is was -- and wamu's thinking of the time was well we have all these requirements under the community reinvestment act and that is

when you're basically required to make loans to the people in some capacity. and also, sub-prime lending could become extremely popular in the '90s because prime loans and conventional mortgages were not making that much money any more. so one of wamu's, their chief mna guy went out looking around for it good sub-prime lender by and he landed on long beach mortgage. quite honestly it was the least dodgy of all the sub-prime lenders he could find because there was some really shady stuff going on in the accounting of these companies. so they ended up, even after opposition internally, buying the small sub-prime lender in the late '90s, and it was the first time they really broke away from what they had in doing originally. >> what was it about long beach that would again the cancer that overwhelmed the system?

>> it really was like that. when they bought long beach it was almost like a little cancer cells so there were several things about it. a big thing that not a lot of people pay attention to is that long beach is in california which is very much would become the epicenter of sub-prime and risky mortgage lending so it was far away from seattle headquarters where everything was being controlled. also, these mortgage workers, long beach was not the kind of lender where you walk into a bank and you talk to someone and you get your loan. that is called retail lending and that is what wamu had done mostly beforehand. long beach didn't actually talk to any people. it didn't talk to the customer. they just bought loans. they bought loans through mortgage brokers which didn't work for wamu. so there were all these sort of third party people out there

accumulating all these loans, so that is a very unsafe system because there is no quality control involved in that. >> and we should make the point that one reason the community reinvestment act came in was because the banking industry had red-lined minority and poor areas and there's this kind of tinfoil hat conspiracy theory out there that the reason we have a banking meltdown in 2008 was just because all these minority dead beats wanted mortgages and that is not the case and that is not what the community reinvestment act was about. but, it did require certain compliance, but the big thing that you'll eliminate in the book is that this was not just all truism. sub-prime lending was incredibly profitable. >> i mean investors were buying it and paying far more money than any conventional mortgage. so in the mortgage business,

everything is being driven by the end investor which is wall street and their customers, and so they were paying -- they could make far greater returns on these riskier mortgages then they could make on a regular 30 year mortgage. so because of that, they're suddenly became this huge incentive to make more sub-prime mortgages and other risky loans. >> you wall street buys it, slices it, dices it, cells that. is hugely profitable and it seems it's risk-free because these prices will never go down. mortgage payments are made for lively and then these lending institutions get pressure back from wall street, we want more, we want more. >> exactly. >> but there is a point in the book long before the housing bubble where kallinger gets in

trouble in the early 2000. what happened? >> well, interesting thing about wamu is a lot of people like to paint this picture about all their problems really happened. they happened in for three years before their 2008 failure of the problem that wamu started long before that and we can point to 2000. that is really when they started to go downhill and one of the biggest reasons they did is because it was at that point that carey killinger stood up and said we want to become the country's biggest mortgage lender and he internally began this push into risky mortgage lending even after that. their slogan turned from friend of the family to the power of yes and the power of yes was suddenly the slogan being blasted across times square in new york, on billboards across the country and that was what they were really dedicated to. so that bush really got the ball

rolling. >> you now before we get into the good stuff and it's all good stuff, one of the differentiations -- different change in sigh may, i covered -- when they were going on one of the biggest banking acquisition sprees and they were real commercial banks. washington mutual was a thrift. it is a savings and loan, and this would matter a lot later because to my mind, and i just want your impressions on this, washington mutual was this kind of jurassic park survivor of the savings and loan industry, most of which had collapsed in 1989, 1990, and get washington mutual had continued on.

the commercial banking industry did not like the thrift. they didn't like competition. they wanted it to go away but when the savings and loan collapse, the remaining snl's were folded under the fdic. there used to be a federal savings and loan insurance, and that they didn't have certain advantages that the banks had. for instance they were not really controlled regularly by the comptroller of the currency or the fed. ..

it wasn't that they just up one day decided to make mortgages. they were always making mortgages because they had to. it was that they went down a different road that they had been previously. >> very different. if you recall the nations bank, bank of america hated to think that the passion. deeded mortgage lending, and he hated investment bankers. take that for what it's worth. things started to change. kerry changed it for a tightknit management group tried it to grow apart. maybe want to walk us through that. >> said two things started happening at once around the

time frame which is a crucial time frame for wall move. kerry dillinger began to really believe that while new should be an east coast institution. he really became obsessed with this notion of having the bank compete with all these giant tanks on the east coast. he really wanted that. and at the same time, he began to change personally. he left his wife of 30 years and she had really been credited with keeping him grounded. he remarried another -- yes, linda challenger, who was a lot less so and both became much more access with attracting this year after banning corporate jet for the span of a ceo career, they were certainly flaying corporate jet dollar in the country. they became -- the bill, you may recall just down the street to have a giant new skyscraper that was built around that timeframe

when kerry became obsessed with all of these things. he thought a big name should have. so you is really changing personally. at the same time, the bank was so large, his brain and all these are a few days from the east coast, it was really becoming a very different culture. so a lot of the people that and therefore more of a decade began to leave. they were frustrated. they didn't get along with the east coast people. there was a lot of culture clash is that began to deteriorate. >> and what was their concern on part of some of the old-timers about the safety and soundness of the banking they were doing, the landing they were doing? >> absolutely. you know, you can come a lot of the programs were already bubbling to the surface at this point. almost two or three years after they bought it long beach, there

was fraud going on in the mortgage unit out in california. you know, these things are bubbling to the surface. people were trying to bring them up. they kept getting shut down. finally 2003 they launched an internal investigation that is a legal team i found that a sickly a huge chunk of the mortgages they were making and selling to investors around the world are just garbage. this was in 2003. and you remember a couple years ago we heard all about how banks, you know, and this is still going on, by the way, they just came to the landlady comforters ago. they couldn't foreclose on people because they didn't have the paperwork. wamu had no paperwork in 2003 of long beach. people's files or will literally like a scribbled piece of paper in a file. so they have to go through into

a massive overhaul. that was long before any of us would ever hear anything about sub prime loans. >> why did kill interchange square >> i mean, that's a good question. i spent a lot of time asking people that very question. i think that it's very hard for anyone to stand a manhunt for the whole country tell you over and over again how great you are and how you're the best thinker in the world and how your company has achieved this massive feat in only 10 years and being your profit expectations every year, at some point he began, as did kerry, and that is really what happened in this case. he really began to believe his own press. and he really became a different person.

he became much better, much more charismatic. he was no longer awkward. he started wearing fancy clothes to work and didn't wear his op are looking glasses anymore. but he was a different person. >> and to be fair, he declined to talk to you for the book quite >> yes. you may have seen he wrote a letter to last. >> i think you ought to put that as a blurb on the book. he made clear his dissatisfaction. so let us set the stage, the.com crash have been through the recession 2000, 2001. the enron scandals came on and the others come and there's all this world looking for someplace to go. alan greenspan, the cycle of lion brand, two-story, flooded

the markets with cheap credit and i'll bet money that it ran on wall street goes into real estate and lending a mortgages and it's not just the american dream anymore to a life, liberty and pursuit of happiness. you've got to have a house. if you don't sell that house every couple years, you're not being patriotic and you need to flip houses. it seems so long ago after what we've been through. and yet, it was just yesterday when this radical change comes about. this changes the capital markets. completely out the states for one no and reveals tremendous fault lines. and maybe want to walk us on from there. >> so obvious money and flooding

the system essentially becomes the wild west out in california specifically in terms of mortgage lending. so in this book, one of the most eye-opening parts for me was when i spent a good month in california interviewing a lot of loan officers and mortgage brokers who are part of this craziness at the time. and it is not an exaggeration when i say that literally dead people were getting mortgages. in fact, there is this one -- i couldn't believe it when i heard at the first time. there is a spot and it showed in the boat that wamu's chief officer told me about where they were investigating one of the loans coming through the bank and it was this kind of famous josé flores and he was supposed to be this state six-year-old gardner. well, they ran a social security check. by the way, feel that when the

check because mortgages were under review. i never would've ran such an extensive check normally at this time. they find out this guy is actually dead. so they go to josé, who is actually a 23-year-old guy and say hey, your social security numbers since you were a tad. and he says okay, hang on and he leaves and comes back the next day with a sheet of paper that says i am not dead. i am right here, josé flores. and say chaumont has really kept a sheet of paper because she cannot believe it. this was the sort of thing happening all the time. and we should say is the point, wamu is a mirror for what happened to the entire banking system. so at that point, wamu is leading the charge, that almost every financial institution was going forward as well and wamu is freakily competing with countrywide to try and make the most common e-mail, option mortgages and sub i mortgages

and all these other risky mortgages. >> was there an understanding in the front office of the complexity in which these mortgages were being ratcheted up the food chain? >> wamu as in wamu recorders had some understanding, at least i would like to believe they had some understanding. at the ground level, absolutely not. so these loan officers frequently knew they were making mortgages to people who have no chance of paying them back at all. but at the back of your head, they've been told by headquarters, wall street is buying them and wall street is going to do something but then. so these people who are normal people off the street, a lot of them don't have degrees, but they are making a ton of money

and commission are being told wall street is going to take these mortgages and somehow the risk is going to disappear. so they just really believed that. they thought these guys on wall street had phd an mba from all this, so let's keep making these mortgages that were making a ton of money. >> the algorithms looked good at the time. >> now i know in the case of bank of america, some of the banks that covered that the regulators were highly compromised in the sand for people from the office of comptroller of the currency and the federal regulators when they were trained, they were trained in charlotte at bank of america and first union. and these banks have spent it really hundreds of millions of dollars to get glass-steagall repealed and to get the latest regulation possible. but with select for washington mutual in the regulators? >> so washington mutual's main regulator no longer exists actually. the office -- the ots, the

opposite for supervision. now the interesting thing about the ots as it was formed after the savings and loan crisis. and so of the banking regulators, they really had this inferiority complex. it was much smaller. it didn't have as much power. and it wanted to be regulating more banks. and so that's sort of need for power really colored how it was regulating the bank because it didn't really care so much with the banks were doing, just that it had a lot of tanking assets under control and that also dictated its budget, right? so the ots was regulating both wamu and countrywide and a lot of these other mortgage lenders. and so, you thought that there was very lax regulation obvious

way. i mean, there is just not a lot of attention being paid to it was going on. >> when the crisis really becomes unstoppable, there are efforts made to save the institution. handicap the staffers for us. what are the chances? >> of wamu surviving? >> i want to get into that a little later. the private equity, texas prager is a good record. they put very good money into this. it seems like there's a little breathing room. safwan is worse. there's a new ceo for what, six weeks at >> said the crisis, they say it

happens slowly and then quickly and that was absolute the case of wamu. it began to get very bad. all of their issues internally, their internal controls have fallen apart. at one point they were making mortgages on 12 different systems. they've grown so fast that there was just no control internally. their mortgage division had ballooned out of control. they had this massive trading desk. it turned into not a mortgage lender as they were only 15 years earlier with lewis sayre, but also a mortgage middleman in which they were up mortgages in getting them out and making a lot of money in between. svea turned into this just as housing prices have been going up astronomically every year began to crash, really began to crash. sisseton lake, wamu is left with holding all these risky mortgages. and although homeowners could have just refinanced could

anymore because the housing prices are there to support it. so said my wamu have been profitable for how many years at that point. kerry killinger had always delivered amazing returns. they literally were eating away at the cushion they needed more money. so in the spring of two dozen may come if they decide, we are going to either try and sell the bank were going to raise private equity. and no one wanted to tell the bank. everyone in wanted to keep independent. jpmorgan chase, jamie diamond is always sniffing around asking kerry if he wanted to buy it. he never wanted to. instead, they successfully raised $7 billion in private equity from this group of financiers tpg and everyone certified okay, they've made it through. they raised a lot of money. they have the backing of this great group of people. a lot of people thought that was the turnaround point.

>> now what i find interesting and one does not have to be in fierce to start to see these things that the timing was just off, missed it by that much, maxwell smart. on so many fronts because there came up point what the fed and overruling shoot a bear at the, tim geithner and hank paulson said we're going to back everybody with every thing. some are never going to have another wamu. but washington mutual did not have political: washington d.c. washington mutual was not a new york bank. and yet, there was this very healthy part of washington

mutual and retail branches. and so the regulators who have the real power don't care. sheila bair wants to shut it down. and meanwhile, something very interesting is happening in the york with rumors that started at least a bank job. >> you could call it a job. through politics becomes a very important issue here, like you point out. so kerry killinger had never made a priority of building up these relationships in washington d.c. he just never did. so wamu did not have almost any friends back there. meanwhile, bankers like jamie diamond who considered it their seven-point business, right? so wamu suddenness and his love, even after it raised the money in the summer 2008, in the middle of a panic situation. the bank is just filled in california. y'all may remember we saw the

pictures of the lines around the block in teeple pulling out their money. it was a wonderful life and how could this happen? everyone panics. what no one knew is that wamu suffered a run for baker and they did it very quietly. no one knew about it at the time, but they were losing massive amounts of money every day. so kerry killinger, very panics about this from called hank paulson, then the treasury secretary because he's heard there's going to be a negative media reports coming out about wamu and there's going to pull more money out. he gets hank paulson on the phone and hank paulson calls tells them essentially there's no money coming because he should've sold to jpmorgan chase and that is when it becomes obvious that wamu has no friends in washington and that is a dire circumstance to be msu after

september 2008. >> there's a campaign in new york against washington. >> jpmorgan did not get the bank in the spring 2008. he's not a bank that likes to lose. he would've not won while mayo in this dream. so there are from the sidelines friday in maritime essentially. they could return and have another opportunity. and so you can take that opportunity to meet with regulators, often about wamu. >> we were both on the story with different publications. i'm a columnist, you're a reporter. but this book is made up of so much more than that. tell us a little bit about the

difficulty of really getting to the bottom of some of these reporters, what was really going on with the fdic and sheila bair. they didn't just respond to your freedom of information request. >> now, they didn't. well, a lot of the work that we did in public records request we did while i was a reporter at the business journal. and i'm sure we'll never forget when i received this e-mail's back. we were trying to piece together what extent he has happened in the three weeks before wamu failed attempt is extremely secret. no one was talking about it. none of the government agencies to talk to us. so we request your these e-mails which would shut wamu down and they all came back completely blacked out. all you could see in the subject line was wamu. in fact, which is selling off

that the only hard in this book is one of those blackout e-mails. i mean, we still have hundreds of them. and so, even during the book process, no one -- i can't tell you how hard it was, the last chapter is just a blow-by-blow of what was happening in seattle and washington d.c. and new york and it was like pulling teeth. i had to rely mostly on records to piece because even three years later no one wanted to talk about it. very controversial still. >> there's not everyone lives in a broken heart including the pepper. >> yeah, with blue, one of the tragedies of this story have known before is kerry killinger is making these decisions to build up on mortgage lending and go down that path.

lou had started writing these letters to kerry and others at the bank saying you shouldn't go down this road. this is not the way to go. you need to get rid of all these loans. you know, the culture had changed so much at the bank that now they were focused on being driven instead of some of their long-standing values have been fair and caring and humane and lou was just so upset about this. you can imagine 2005 and lou had been away from so long. when he shows that everyone is busy. who wants to do with this guy. it was just it tragedy all around. >> in yet, lewis still beloved. >> backley. >> was surprised you most in your reporting and writing of this book? >> one of the things that surprised me and continues to surprise me every single day with the headlines we see a just

how much the regulators were able to get away with. it is just astounding to me in this country that we have these gigantic financial institutions. an even smaller ones coming in now, like we just saw the huge collapse in iowa at the brokerage firms. and so little regulation making up into the crisis, the regulators of wamu were so focused on turf battles, who was in charge of regulating wamu. should be going to you doing the exam rather than doing the exam are paying attention to what was going on. and so it's unbelievable to me still. >> and they are essentially their paychecks depend upon regulating lightly, even though our president is a socialist muslim islam a fascist goldwater republican.

it continues to this day. >> it continues to this day. before this, we were talking about the latest scandal, which was laborer. you can pretty much up in the paper read about the latest regulator. >> liber. well, kiersten we are going to take questions now, but thank you for the wonderful diminished on the book and i know people have written questions so that we don't have a mob scene. they will bring them down. i have been told to ask to more questions. how come you got to go to "the wall street journal" and i didn't? [laughter] nevermind. go get back to that later. what's happening to kerry? to show around town? >> kerry is still rattling

around town. he has a house in palm desert. i was touring a sort of midlife crisis stage he bought a couple houses in palm desert, said he spends part of the time -- >> t. be getting no doc loan? >> actually never subjugated the mortgage. >> that is not really welcome at the reunions? >> now. i don't never see his name on the invite list. his ex-wife debbie is, though. >> debbie is beloved. and rotella? >> he moved back to new york it is the president of wamu and arrived in 2005 for three years. said pretty much the second the bank failed, he went back. i hear he's working in financial services, but it's not anywhere that we would've heard a. >> and the shareholders wiped out?

>> wiped out. >> you have a very affecting kind of bookend. i don't want to give away too much. >> the bank failed at the end. >> we know that much. [laughter] do you actually coming iannella people who are not the high rollers, just believed in the seattle thrift. >> i was the sort of misconception about shareholders. yes, they were just a short sellers in the last days. there were a lot of mom-and-pop people in washington state. it is their ipo in the 80s. let's take a thick stack. >> they have it ecstatic. i have to take up my glasses so i can read and figure that out at home. i am now screening this in advance, so if you've written bugger, bugger, bugger is going

to be on national television. i've asked this before. why should mr. challenger be in prison? [applause] so we talk a lot about the regulators. we have attacked about the regulation. so there have been multiple investigations into wamu, including an extensive criminal investigation asset than any of the other financial at the two shins. and the short answer is that there is literally -- there was no law at the time, and still not, to be honest, that they could hang these guys on. they literally could find nothing illegal. and it wasn't for want of trying. and that is by their still not high-level executives go to jail and why they are still trying to push forward of this massive financial reforms they haven't been able to do.

>> but i don't know if it was for want of trying. >> they tried. >> i think we have a corporate lawyer as attorney general and the banks frankly on the place as dick durbin said about the senate, there was not an urge to prosecute. now there were three questions on this. i won't forget you. i just want to be fair to others. if you could we writewe write, change any part of the book, what would it be? >> that's a good question. i wonder if they mean like if i would've for something differently or if the book's history could've been different. >> the first one, if i would've written something differently. that's an interesting question. i mean, i would've loved to actually have talked to kerry killinger. that would've been nice. so that would've changed.

i could've spent the entire book talking about like the last month because they were just so many politics that went into the decision about how wamu was received on the east coast that we never knew about out here. >> yeah, very illuminating. has anyone been prosecuted, particularly executives? >> now, they have not. >> there was a fizzle at 10 been led to a settlement. maybe what you briefly tell us about that. >> said the fdic, the regulator to shut wamu down made this attempt to suit kerry killinger on the head of the mortgage division and they ended up -- they sued for a billion dollars, which was unheard of basically they ended up settling out of

court for a fraction of that. i think he was 64 million or something ridiculous below. by the way, most of that was covered by the executive's insurance policy at the bank. so they have paid almost nothing either. >> they got away with it? >> -underscore and pic and you'll forgive me and i'll try to come back to you. for those who have shares of sound they been merged with wamu, is there any chance their shares are worth anything? >> probably not, no. >> how would one find out? my suspicion is don't waste the brain damage. >> i mean, you would have to look to the bankruptcy court filing of the holding company, which is on the file for the after wamu was seized. they have i believe reached a settlement earlier this year. shareholders did get a little bit back, but not a lot. hardly anything. >> you think jpmorgan chase got

an extraordinary deal? the chip that jamie has implanted in my head will start to guide me around in just a minute. let me finish the question. an extraordinary deal on a lot of assets are with the low price justified by the associated problems? >> so, jpmorgan paid $1.9 billion for a bank with $307 billion in asset. so they absolutely got east remain deal. now they felt that was justified because of all these terrible mortgages. but let's be clear, these terrible mortgages have not kept jpmorgan for being profitable. they clearly dented the bank. the reason that wanted wamu anyway was for all its branch

network across the country and especially on the west coast. wamu have thousand of branches. jpmorgan was only on the east coast and they have branches now. they're doing great, so they got an amazing deal, the deal of the century. >> too big to fail to figure of a loss for major corporate headquarters. >> what about the auditors, deloitte & touche, what about the board? why didn't they blow the whistle? whited may come forward? >> the auditors have been the most under command of any group during the financial crisis. i'm not a fan to my knowledge, i could be wrong about this, blew the whistle at wamu. the board was very much school. many of them had been on the board for years and they were very much low by the amazing performance that kerry killinger delivered in the decade before. so they were really asking any

tough questions until it was too late and then waited an extraordinarily long time to actually get rid of kerry killinger and put a new management when they should've done it a year or two before that. >> the story of an directors. >> but they were among the highest-paid word in the country. they were second only to goldman sachs or some day. yeah. >> you can see what money pays for. >> yeah. >> to the wall street collapse of dairy -- and every day not right, banks in u.s. washington, did i get that right? does that make sense to you? >> no, josh >> we lost our biggest financial institutions. jpmorgan took over, we don't

really have a major bank headquartered here anymore. so what were the consequences of that eon the ecosystem that was thousands of employees and vendors and so forth are asked >> absolutely. of course in the seattle area was just a massive loss and massive effect here. but as you pointed out, the too big to fail institutions got bigger. so now instead of this bang that has been integrated into seattle and in this area is gone and we have five banks that are really controlling most of the asset this country. >> and they are not here. the ceo doesn't live here. they don't contribute to the community the same way. >> yes. [laughter]

>> the federal reserve captured regulators ensured a mess. so what is to be done? >> i mean, if i have the solution, i would probably -- i don't know what i would be doing, but maybe just is the next book. i don't know. i don't know what the solution is. i mean, they are having trouble passing dodd-frank, our financial reform. it seems like even with more regulators in place, we are still not making any inroads in regulating these financial institutions. but to actually break them up, that is an incredibly difficult proposition . so the way out is en masse. >> i can fix things if i were king. rick at the too big to exist banks, bring back glass-steagall. 38 pages, rowson o. [applause] >> been in place and senate said the banks don't gamble because then there's a transaction.

and so they actually invest in making loans for productive economic activity. you put in place incentives that they are not competent taking excessive risk taking an effect repeal citizens united and get politics out of the system. [applause] i am a columnist. he actually reports the facts. you mentioned at wamu had no friends in washington d.c. why do you think we haven't heard a lot from her own representatives such as murray and cantwell? >> that is such a good question. >> at the general of the reporting on the stories, we reached out to her on multiple occasions because after wamu collapsed, she made this very big show of coming out saying we're going to leave this investigation into this collapse. we're going to figure out what's happened in that it was radio silence.

and so she's been extremely quiet on everything and didn't really have -- do anything for the buck and it basically to my knowledge kind of big hornets sense and the same with patty murray. >> what you think of the aftershock scenario for the u.s. economy and how will it affect too big to fail bang, and if i read this rate, the rest of us? >> the aftershock -- >> i can speculate on what the aftershock effect is, the lingering quiet side depression, the slowdown in asia, the year is en masse and the fact that the financial system is still engaged in incredibly risky behavior. are we talking about stiglitz here? will go with my theory.

what do you think? >> well, everyone has been affected by all of these things right now. you see jpmorgan chase's massive trading lines basically a bad debt on europe, right? put in a way, these institutions are so big that they are shielded almost a bit because even with a massive trading maas, you still see jpmorgan reporting process, said they are all very affected. but we laid created to assist a with the baker just gigantic. >> and a fob buildup by the taxpayer. to that creates what economists call moral hazard. >> rate. >> this is a great question because we get a little too much inside baseball and the financial journalism role, all three of us. describe the problem and the

option, an aggressive push by wamu. >> that's a great question because they didn't get to. everyone knows wamu. but one of their biggest projects is the option armload. so this is this incredibly dodgy mortgage, we could actually choose between various options each month of how you pay your loan. even the concept is unbelievable. so one of the options was to pay the minimum balance. and if you chose that option, then the amount you were paying actually gets taxed on sheer principle. so you are a accruing debt. you just don't know it because you are fooling yourself thinking you're paying the minimum amount caused by the way, everyone across the country did for the most part. when you get your mortgage, why would you pay the minimum amount? what happened is all these homeowners were adding to their

debt, but wamu, lake with their subprime loans could so this option arms for a ridiculous amount of money to wall street. you're eating them up like crazy. so they're both push was to make a lot more mortgages, said they were making them like crazy. >> amazing, underwater city. how early was their negative publicity about wamu and where was that? i assume publicity includes press reports. >> so wamu had been of a big blowup in 2004 that wasn't really heard about. but what happened is they are poor -- we spoke a little bit about how they basically had no infrastructure at the bank. they were operating on 12 mortgage systems. well, all of that emerged around 2004 when they began basically trying to foreclose -- foreclose

on homeowners who actually pay their mortgage. and the reason they did that is because they literally forgot to tell someone to go open security boxes and pick up the homeowners checks. this is how bad it got here so while the state started suing, analysts started writing reports comiskey and these guys can't run a mortgage operation. this is what finally forced kerry killinger to get a president and chief operating officer, which was steve h-hotel. so they were experiencing a high publicity before. during the financial crisis, i think it was starting to get ready back in early 2007. >> and of course, tv has a way of amplifying the in the press. thank you for your boat. i'm a loan officer with 21 years six. since seattle and i can say quote, you got it right,

unquote. this person's question is, other than paul krugman, i don't remember any journalist saying this is a 2004, 2005. did anyone else call it? yes i did them one of the reasons i was thrown onto phoenix. dbu? >> now, my gosh absolutely not. >> i think that it was -- there were people in the financial crisis raising questions, but the results are the economic orthodoxy. most economists were very reassuring. again, i've the platform of a column, so i call it. and why you called it, that he was an economist and not a journalist. he jpmorgan gain anything due to

the wamu failure? jamie, are you out here? anyway, dgp morgan keegan anything due to the wamu failure? >> yes, they did nothing to gain anything. they gained more than 2000 branches across the country. all of this employer's skin depressing but wamu hat and they got it for basically no amount of money. and this sort of pesky mortgage problem they had to deal with. >> in the 1990s, wamu owned or had control of a large piece of southern california. one of the last pieces of original habitat near the cities other than camp pendleton. what happened with the land? >> that's so interesting someone asked about that. i don't know the answer and i wish i did and i can tell you when i was researching, especially in the 90s i would often and an insane amount of

time reading old press clippings and a lot of stuff about that land kept coming out. and i kept thinking i wish i had more time to figure out about this plan because it sounds really interesting, but i never did, so unfortunately i don't know the answer. >> i'm sorry to say i'm been giving the signal to wind things up, but this is a total fair fashion. will be around later, but the last question is after the collapse of one new, losing money, so only two sentences. to pay a bonus to join jerry. >> that is a great question. there was just enough money. >> thank you so much for being with us tonight. caught back

>> is that booktv.org to watch any of the programs you see here online. take the author or book title in the search bar in the upper left side of the page and click search. you can also share anti-ddt in the tv guide work easily by clicking share on the upper left side of the page and selecting format. streamlined online for 48 hours every weekend with top nonfiction books and authors. booktv.org. >> randall kennedy in the stra-selling book, the and word, strange career of couple somewhere. you're right about violence a speech. what do you think?boyou >> well, that book is about the ord nigger and is itself a worr that is triggered lots of violence and to some is silent t in and of itself.ence and t what i wanted to do and not vote is give a history of thisbeen cd

word that is then covered withaw blood wrought havoc in american culture. of course that is not all it does. one of the reasons why it was both worthy is because of the complicated word. it has a terrible history, a history of insult, history of terrorism, a history of intimidation, but of course it has been put to other uses, too. it's been made in an ironic and a term of endearment so the word nigger as a complicated word and has biomass space, but other aspects as well. ..

did not get more than a sixth-grade education, lived the entire life in south carolina. she was a seamstress, she was a domestic. choose a strong-willed lady who raised a slew of kids, spent most of them through college and absolutely great%. i knew her for a good portion o. my life.- a she used a whole lot ofor different mood. she referred to black peopleed sometimes ask colored people soe the infamous n-word, and she has been a person who's example and

whose wisdom has been with me all my life. >> host: is it illegal to use the n-word? >> guest: generally speaking, no, although -- well, i take that back. if you use the n-word in an employment setting, for instance, if you or somebody supervisor and you refer to your work to a worker as a nigger, where you refer to black people as niggers, you may be in violation of the law by creating a hostile workplace and thereby make yourself subject to a liability under state law or new the civil rights law of 1966 -- 1964. so, under certain circumstances, you can do things which would make yourself -- which subjects

yourself to legal liability, or another way. if you commit violence and in the indication of a -- the commission of a violent act refer to people using the n-word, you might be subject to hate law legislation, and thereby not only be prosecuted for assault or whatever violent act you have committed, but you might subject yourself to an enhanced penalty by running afoul of state hate laws. so, under certain ccumstances, yeah, you would be in violation of the law. generally speaking, though, because of the strong shielding power of the first amendment, people, for instance, comedians or writers, can use the n-word and not have to fear the law,

though you might have to fear a public opinion which itself can be a very powerful force. >> host: is that the near word versus citing word? >> host: the law of homicide, all sorts of different levels of homicide, and one big divide is between manslaughter and second degree murder. so, for manslaughter, the law gives you a little -- if you kill someone, but you can make the argument that you killed somebody in you were in the grip of passion. the classic example of manslaughter, you come home and you find your girlfriend or your wife in the arms of another, and you kill that person. you've committed a violent act, but the law will give you a

little bit of a break because you were in the grip of passion, and the law says, we give you something of an excuse. not a full excuse but we recognize that you couldn't control yourself. well, there's some people who have made the argument that they were in the grip of passion because somebody called them the infamous n-word. they strike the person, maybe they kill the person. and the argument becomes, can you or can your lawyer make the arguement to a jury that you were in the grip of passion because this person called you this particular word. now, in some jurisdictions, like washington, dc, you cannot even make that argument. washington, dc, the jurisdiction that has the "just words" doctrine, and the law says no matter what the word, no matter what somebody calls you, that's no excuse for using violence. but other jurisdictions say,

we'll let you make that argument to a jury. >> host: professor kennedy, you write in the n-word book, there's nothing necessarily wrong with a white person saying the n-word, just as there is nothing necessarily wrong with a black person saying it. what should matter is the context in which the word is spoken. the speaker's aims, effects, alternative, to condemn whites to use the n-word without regard to context is simply to make a fettish of the word. >> guest: yes. the best example to illustrate that point is mark mark twain'st novel, huckleberry finn. anythinger appears in that book over 200 times. i think huckleberry finn is a wonderful novel and its impulse is antiracist. antislavery, obviously over the years there have been many people who wanted the book banned or wanted to erase the

word. i'm not for that. you have a white author, but he is using the term "nigger" for purposes that are clearly antiracist purposes. there are others. lenny bruce. lenny bruce was a great social sat -- satirist. he had a number of times when he used the word nigger, not to insult black people, but to turn the table on people who were antiblack in their feeling and he used the word nigger to laugh at them. using the word nigger as a mirror on race simple in order to combat racism. adore used the word anythinger

in some of her short stories. she wasn't using it to be a racist. rather, she was using is as an artist to de-legitimate race simple. that's what i meant. obviously there are black people, too who have used the term nigger in ways that in my view, are completely unobjectionable. dick gregory titled his first autobiography, "nigger "an autobiography." and richard pryor with two great albums, "that nigger is crazy" and bicentennial nigger." >> host: when you wrote the book, it was published in 2002. what reaction did you get?

>> host: when i do. >> guest: when i wrote the book i got a lot of reaction, some positive and some negative. and continue to get some positive reactions and negative reactions. some people took real offense at the title. if there was one aspect of the book that probably got me the most negative reaction was people who complained about the title, and who thought that i was being sensationalist, i was exploiting this term by putting it right there in the title, right there on the cover of a book that would appear in your book stores all across america. and what i said to people was -- and i still say -- and i say this unapologetically -- if you write a book you want people to read your book. there are thousands of books in any book store. there are hundreds of thousands

of books in any big library, and you got a lot of competition. the first thing you want to do, if you're an author, is to at least have somebody pick up the book. and so when i was thinking of a title issue thousand what i can title this book that would get somebody to take a peek, read the first paragraph. and i thought, well, nigger. nigger is a strange career of a trouble self-word. and i thought that would -- just think hard about words, think hard about examples, get the readers attention. that's what i was trying to do with the title.

>> what are you reading this summer i booktv wants to know. >> i've got five books that are in a? if you will. i read about 60% of the time on my ipaq and 40% of the time hard copy. i cover my nonfiction this summer. during the last break i read a book on fdr, the election in 1844. another keynote by stanley weintraub called final victory that the same campaign. i looked at this for a number of reasons. the white it may be interesting to political junkies in two days time. she read about thomas dooley, you see a lot of that romney good, bad, all the issues, you see pop-up when you read these books about thomas dooley, especially campaign of 44.

forget the campaign of 48. the campaign of 44 as well. i'm also finally getting to another nonfiction book that i am getting to read for the kind about a friend of mine who wrote a book called pinched and it was about the great recession. and it is chronicling sort of how it is culturally changing us. it is not just in the pocket books. it's what kind of long-term changes taking place in many places around the country, talking about a white male underclass is one of his pcs and mayor. but it's a good way and i'm thinking about making it required reading frankly for a lot of my folks internally. but i think every politician not to read this because it really explains, as well as anybody, the chronic hedging bets out there. you see it in the polls, but that is -- why is that we are so

pessimistic about the future? we don't have this optimism anymore. but there is just a ball of pessimism. not necessarily translating them the benefit frankly one party or the other. it is just sitting there is sitting on us in this great recession. we've gone through this before as a country. we think works out to read. fiction books and of course reading danielle silva's new book, reading to a colleague of mine, but they're all good. fallen angel. that's what i love. and i've been plodding through, but i haven't given up on the stephen king book, 112263, another fictionalized history book, obviously using the kennedy assassination.