little minister. >> literary life in columbus, ohio with booktv and c-span local content vehicles on c-span2. tonight on c-span2 booktv, a look at desmics from global to local. up first "the wall street journal" kristin grind exams collapse of washington. from african-american owned businesses. coming up next, "the wall street journal" reporter kristin grind exams the 2008 collapse of washington mutual. the largest bank failure in u.s. history. she was a pulitzer prize cofinallist for the coverage. from seattle public library.

it's about an hour. [applause] well, it is so wonderful to see a great crowd here in one of america's great public libraries. and a reminder why the commons are so important, and so welcome my friend kristin grime back to seattle again. sorry there's no big bank failure today to cover. >> lovely weather. >> well, i'm from phoenix, endless sunny days make me depressed. i'll get by with the weather for now. "the lost bank "is a must-read if you understand not only what happened to washington mutual which was a huge trauma for the city a trauma that continues but had broader policy implications for what happened to the great recession, and how banking

contributed to the meltdown. there were times when your book reads like a thriller. but after one of those kind of thrillers teases, we don't start out with kerry killinger and we don't start with any of the things we think. we start out with a guy named luke pepper. why is that? >> he was one of the early ceos. he was the ceo during the '0eus and i thought it was very important to start out with him because he represents a time banking system that has been lost. banks were smaller and community friender. and during that time they were known as the friend of the family, i'm sure a lot of you here know. er. er infused the bank with such an amazing culture.

it was just widely known across the region as a great place to do banking. it was terrific for employees to work there. it was terrific for customers and it all began to change. >> well, everybody has the blind spots. and in luke's case, something that he would come to rue was when he bought a small spokane broker dealer and somebody came with that deal and maybe want to tell us about a that a little bit. >> in walked in to luker. pepper's office a young guy named kerry killinger. she was sharp as tack. he knew everything about financial reporting, he had run the really well-purchasing mutual funds and everyone at the bank was sort in awe about the knowledge as was luke and he became lou's property jay.

property they. when it was time for luke to pass the bank on it made a lot of sense he passed it on to kerry killinger. tate we should say while luke was a regional bank luke had done a terrific job of growing it. only had about $9 billion in asset nos outside of seattle had heard of it, really. >> and at the same time, when most people think of the kerry killinger, they grew to know, that's not the person that we get to know at first. i was fascinated by the background of kerry, that you painted. last guy in the world you would expect to be stiff banker or a risky banker. >> absolutely. this was the very humble guy from iowa. he had the very classic sort of growing up childhood where

people like pick up baseball games on the lawn. and he mar reed his high school sweetheart he met her in the band. he put himself through state school. she was humble and ethical. very by-the-bock and very nice. he was extremely awkward, i should say, employees use to be worried about landing this an elevator with him. he was comfortable with looking at financial reports. but there was nothing crazier and unusual about 4eu78. >> except he was a trump tear. >> except he was a trumper. >> times he would play the trumpet at work and employee activities. it was perhaps a little bit strange. but not for them they had a quirk iy fun culture. kerry is the on only one that was an actual musician. >> he went on on accusation

spree for at least a thrift was pretty awesome. why don't you tell us about that. >> absolutely. kerry took over the very small bank, in 1990, and he the fabulous team of people surrounding him that luke pepper had chosen. together they worked like clock work and they -- [inaudible] they were buyingbacks during the left and right. it was during the merger and alaska situation spree. there was a savings and loan crisis going on. while luke was able to take advantage of that and buy a lot of smaller bangs. they grew rapidly through the '90s by the end of the decade, they had become the country's largest savings and loan bank across the country. kerry killinger had become america's favorite banker. everyone loved him and kerry killinger. they could do no wrong.

they had created the concept we know now. it's going away which is free checking accounts. you could go there and not have to pay anywhere of the annoying fees you pay to other banks. they essentially forced the other banks to follow suit. they were just the most popular company anywhere. >> they were very good at some of the hard things in a financial services acquisition, merging, computer systems, they do it over a weekend. tell us a little bit about that. the customer would not even feel anything monday morning. >> absolutely. so, you know, we don't think about these things. we just think of our bank as a bank, really. but when they buy another bank, it's a complicated, terrifying proposition. you suddenly have two bank groups have to combine all of the systems. and they codo it very quickly. the customers don't notice it. they are expert at that.

and that's a key to any bank that is try to make the large acquisitions. they were able to do it in a way that the customer wouldn't notice it. i mean, this is a bank that was very efficient at really nick they did. and when they came in to these other banks, they were fry tbal. they took away all the corporate credit cards, all the jet planes, they took away, you know, these other banker would have the outlandish bank accounts and, you know, offices decorated like the wild west with lots of companyive trappings and high-rise office building. they kale in and got rid of that. nay ?riew coach. they flying. there. at least at that point. >> we're still in the '90s. >> right. there was this kind of, again, almost like a thriller there was this foreshadowing. and it was this small, nothing

lender. >> so long beach morning was the very tiny lender near disney land in california. >> maybe you could give us a sense ofs asset size. so people can understand the -- how this shouldn't have meant anything and yet it ended up being consequence m. >> it was a tiny fraction of the last largest acquisition they did. it was a small fraction. it was an afterbought. the company made sub prime loan finance made mortgages to people with who had credit not that great. and their thinking at 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 these sorts of people and some capacity. and also sub prime lending had become extremely popular in the '90s because prime loans weren't conventional marges

weren't making that much money anymore. one of their chief guy, his name is craig went out looking around for a good sub prime lender to buy. he landed on long beach mortgage. quite honestly it was the least dodgy of the sub prime lenders he could find. there was shady stuff going on in the accounting at the companies. and so they ended up even after opposition internally buying this small sub prime lender in the late '90s. it was the first time they broke away what they had been doing originally. >> what was it about long beach that would begin the cancer that overwhelmed the system? >> well, it's great that you call it a cancer because it really was like that. when they bought long beach it was like a little cancer cell, right. there were several things about it. a big thing that not a lot of

people pay attention to. it was in california. which was very much would become the epicenter of sub prime and risky morning lending. it was far away from seattle's headquarters where everything was being controlled. also, these mortgage brokers long beach was not the kind of lender where you walk in to a bank and you talk to someone and you get your loan. that's what called retail lending. ghast that's what they had done before. long beach didn't actually talk to any people. didn't talk to the customer. they just bought loans, they bought loans through mortgage brokers, which didn't work for them. there were the third party people out doctor accumulating the loans. so that's a very unsafe system because there's no quality-control involved in that. >> and we should make the point that one of the,s that the community reinvestment act came

in was because of the banking industry had redlined minority and poor areas. and there's this kind of tinfoil hat conspiracy theory the reason we have a banking meltdown in the 2008 was just because all of these minority deadbeats wanted mortgages. that's not the indication. that's not what the community reinvestment act was about. but it did require a certain compliance, but the big thing that you eliminate in the book, this was not just altruism. sub prime lending was incredibly profitable. >> investors were pie -- buying and paying more money than any other mortgage. in the mortgage business, everything is being driven by the end investors which it wall street and their customer opinions they could make far greater returns on the riskier mortgages than they could make

on the regular 30-year mortgage. because that have there suddenly became a huge incentive to make more sub prime mortgages and other risky loans. >> wall street buy it is, slices it, dice it is, sells it, it's hugely profitable, and it seem as risk-free because having price -- houses prices will never go down. mortgage payments are made reliability and the lending institutions get pressure back from wall street. we want more, we want more. >> exactly. >> but there is a mount? the -- point in the book long before the housing bubble where under killinger are they get in trouble early '00s what happened? >> well, the interesting thing about them is a lot of people like to paint the picture that the problems really happened, you know, they happened in the

three years before the 2008 failure. the problem that started long before that. we can point to 2000 that's when they started do down him. it was that point that kerry killinger said we want to become the biggest mortgage lender and he internally began a push in to risky mortgage lending soon after that. there's slogan turn from fend of the family to power of yes. and the power of yes would suddenly their so slogan being blast aid cross times scwair on billboards and that was what they were dedicated too. that push got the balling rolling. before we get to the good stuff, it's all good stuff. one of the disfrench adjacent i

make is -- they were going on the biggest banking acquisitions spree in history. they were a real commercial banks. and washington mutual was a thrift. it was a savings and loan. and if it would matter a lot later because to my mind, and i just want your reflection on? , washington new mutual was a kind of jury raysic park survive of the savings and loan industry. most of which plachtioned in 1989 and 'out and washington mutual continued on. the commercial banking industry department like the thrift. they didn't like the and ticks. they wanted to goway.

the remaining sl were folded under fdic. there used to be a federal savings and loan insurance. and -- they didn't have certain advantages that the bank had. for instance they were not controlled regularly by the comp controller. or the fredz. -- feds. it is the largest failure but it seems like a huge jury raysic park institution was in many ways playing the role of a bank, they had a trading desk. but they didn't have the advantages of a bank of america or city bank. >> that's a good point. absolutely. they weren't actually a bank. if you will. they were a thrift. and also, it's important to point out under their charter is a thrift they had to make a percentage of mortgages. it wasn't that they just up one

day decided to make mortgages. they were always making mortgages because they had to. it was just that went down a different road than think had been previously. >> very different. , i mean, you recall a nation's bank he hated two things with a passion. he hated mortgage lending, and he hated investment bankers. take that for what it's worth. [laughter] things started to change. kerry changed, tight end management group started grow apart, maybe you want to walk us through that. >> so two things started happeninged at once around the 2000 time frame. it was a crucial time frame for them. kerry killinger began to really believe that they should be an east coast institution. he became obsessed with the notion of having the bank

compete with all these giant banks on the east coast. he wanted that. and at the same time, he began to change personally. he left his wife of thirty years and she had been credited with keeping him grounded. >> [inaudible] >> he remarried another -- linda killinger, who was a lot less so in both became much more obsessed with the trappings of the ceo after banning corporate jets for the span of his ceo career, they were suddenly flying corporate jets all around the country. they became -- they built -- you may recall just down the street we have a giant new sky scraper that was built around that time frame when kerry became sort of obsessed with all these things that he thought a big bank should have. he was changing personally at the same time the bank was so large he was bringing in all

these new executives from the east coast. it was really becoming a very different cull dhur and so a lot of the people that had been there for more than a decade began to leave. they were frustrated. they didn't get along with the east coast people. there was a lot of culture clashes and the callture slowly began to crash. >> and was there a concern on the part of the old time ores about the safety and soundness of the banking they were doing of the lending they were doing. >> absolutely. i mean, there was again a lot of the problems were bubbling to the surface at this point. two or three years after they bought long beach mortgage, for example, there started being whispering of fraud going on in the mortgage unit in california. the sorts of things were bubble together surface. people were trying to bring them up. they kept getting shut down,

finally in 2003, they larged this internal investigation lead by the legal team that basically a huge chunk of the mortgages that they were making and selling to investors around the world were garbage. >> that was in 2000. >> it was in 2003. you remember a couple of years ago we heard about how banks, you know, couldn't really -- this is still going on, by the way. but it really came to the limelight a couple of years ago. they couldn't foreclosure upon people they didn't the paperwork. they had no paperwork back in 2003 at long beach. people mortgage files were literally like a scribbled piece of paper in a file. and so they had to go through and do a massive overhaul and that was long before any of us would hear anything about sub prime loans. why did killinger change? >>, i mean, you know. it's a good question.

i spent a lot of time asking people that question. i don't -- i think that it's very hard for anyone to stand up and have the whole country tell you over and over again how great you are and how you're the best banker in the world, and how your company has achieved the massive feat in ten years, and you have beaten the profit expectations every year. at some point you begin as can d kerry believe your own press. that's what happened in his case. he really began to believe his own press. and he really became a different person. he in some ways, he became better. he became more chai's charismatic. he started wearing fancy clothes to work and he didn't wear the awkward looking classes. things like that, right? but he was a different person.

>> to be fair. he declined talking to you in the book. >> you may have seen he wrote a letter. >> i think you ought to put in the book. >> he made clear his phis dissatisfaction. >> right. let us set the stage. the dot-come crash happens. the recession of 2000/2001. the enron scandals world con and the others and all this capitalism in the world look for someplace to go. and alan green span -- [inaudible] [laughter] true story. floods the markets with cheap credit and all that money that had been on wall street goes in to real estate.

and lending and mortgages, and sister it's not just the american dream. you have life, liberty, and pursuit of happiness. you center to have a house. if you don't sell that house every couple of years you're not being patriotic. you need to flip houses. it seems so long ago after what we have been through and yet, it was just yesterday when the radical change comes about. this changes the capital markets. completely ups the stakes for the bank and reveals tremendous fall lines. maybe you want to walk us on from there? >> all this money is flooding the system, and it essentially becomes the wild west out in california specifically in terms of mortgage lending. so for the book, one of the most eye opening parts for me was when i spent a good month in

california interviewing a lot of these loan officers and mortgage brokers who was part of the craziness at the time. and it is not an exaggeration when i say that literally dead people were getting mortgages. in fact, there's a one -- there's -- i couldn't believe it. there's one about dote in the book that the chief legal officer fold me about where they were investigating one of the loans coming through the bank, and it was a guy named or say flores. he was supposed ton a 56-year-old guarder. they ran a social security check. they only ran the check because the emergency mo mortgages were under review. they would have never ran an extensive check. they find out the guy is actually dead. so they go to jose who is a 23-year-old guy and say, your social security number says you're dead.

and he says, okay. hang on. and he leaves and comes back the next day with a sheet of paper that says i'm not dead. i'm right here. jose flores. and they literally kept the sheet of paper. she could not believe it. this was at sort of thing that was happening all the time. and we should say as point, they are mirror for what happened to the entire banking system. so at that point, they are leading the charge but everyone, almost every financial institution was going for it as well. they are frequently competing with country-wide to try to make the most, you know, option mortgaging and sub prime mortgages and the risky mortgages. >> right. was there an understanding in the front office of the complexity in which these

mortgages were being ratcheted up through the chain? >> there was -- the headquarter, i believe had some understanding. at least i would like to believe they had some understanding. at ground level, absolutely not. so these loan officers, they frequently knew that they were making mortgages to people who had no chance of paying them back. at all. but at the back of their heads, they had been told by headquarter wall street is buying them and wall street is going to do something with them. and so these people who are normal people off the street a lot of them adopt have degrees, but they're making a ton of money on commission they're being told wall street is going to fake the mortgage and how the risk is going to disappear and they just really believed that. they thought these guys on wall street, they have ph.d. and mba and let's keep the making

mortgages. we're making a ton of money. it looked good at the time. >> exactly. i know, in a kiefs bank of america some of the banks i covered that the regulators were highly comprised in the sense that people from the officer comptroller the currency and fred were regulators they train in charlotte at bank of america and first union, and these banks spent literally hundreds of millions of dollars to get stegall repealed and get the lightest regulation possible. what was it like for washington mutual? >> washington mutual main regulator no longer exists actually. the office ots, sorry, the office of supervision, the interesting thing about the ots was formed after the savings and loan crisis in the . >> '95. >> of the banking regulators it

really had this infour yourty complex. it was smaller. it didn't have as much power. and it wanted to be regulating more banks. and so that sort of need for power really colored how it was regulating the banks. because it didn't really care so much what the banks were doing just that it had a lot of bankings a is ets under the control. and that also dictated the budget, right? so the ots was regulating both country weed in -- wide and a lot of these other mortgage lenders. you saw they were -- there was very lax regulation, obviously. there was just not a lot of attention being paid to what was going on. >> whether the crisis becomes

unstoppable, there are efforts made to save the institution. hand cap those efforts for us. what was the changes? >> of surviving? ..

one point the remake and mortgages on 12 different systems. they had grown so fast that there was no control internally. their mortgage division had learned out of control. they have this massive trading desk. they are turned into not a mortgage lender is there were only 15 years earlier when we would spare, but almost a mortgage middleman and which they were on mortgages and spitting them out and making a lot of money in between. so they have turned into taste just as housing prices, which had been going up astronomically every year began to crash, really began to crash. so suddenly, wamu is left holding all these risky mortgages. although homeowners that could've just refinanced couldn't anymore because the housing prices were there to support it. so suddenly wamu which had been profitable for how many years at that point had always delivered

amazing returns, literally were eating away at the capital cushion they needed more money. so in the spring of 2008, they decide, we are going to either try and sell the bank or we are going to raise private equity and no one wanted to sell the bank. everyone wanted to keep it independent. jpmorgan chase at my wanted to buy it. jimmy died and was within around asking if he wanted to buy it. he never wanted to. instead they successfully raced $7 billion in private equity from this group of financiers, tpg. ever thought okay, they've made it through. they've raised a lot of money. they have the backing of this great group of people. a lot of people thought that was a turnaround point. >> know what i find interesting and what does not have it to be a conspiracy not to see these

things, that the timing was just off, missed it by that much, maxwell smart. on so many fronts because there came a point where the fad and overruling that she would bear at the fdic, tim geithner a hint of things that we are going to back everybody with everything and were never going to have another wamu. but washington mutual did not have political pull in washington d.c. washington mutual was not in new york bank. and yet there was this very healthy part of washington mutual and the retail branches. and so, the regulators who have the real power don't care. she would bear wants to shut it down and meanwhile some very

interesting is happening good start at least a day job. >> euchre called a job. >> the politics become an important issue like you point out. so kerry killinger had never made a priority of building up relationships in washington d.c. he just never did. so wamu did not have almost any friends there. reviled makers like jamie diamond considered it their seventh line of business, right? so wamu suddenly finds itself even after it raised all this money in the summer of 2008 in the middle of a panic situation. india not think such as southern california. and you may room boy saw the lines around the block and people point out their money and it was like it is a wonderful life and how could this happen and everyone panicked. what no one knew a century and a

suffered a run that was far bigger than 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 panicked about this run called hank paulson, then the treasury secretary because he heard there was going to be an negative media report coming out about wamu and a scared it's going to cause people to pull my money out. he gets hank paulson on the found and hank paulson tells him essentially the there is no help 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 and as you enter september 2008. >> and there's a campaign in new york against washington. >> yeah, exactly because

jpmorgan did not get the bank in the spring. they are not a bank that likes to lose. they were not happy to have not one wamu in the spring. they were off on the sidelines fighting the time essentially and so they could return and have another opportunity. and so, you can bet they were taken that opportunity to meet with regulators, talks to regulators and often about wamu. >> now we were both on the story for different publications. covered at the same time. i am a columnist, you're a reporter. but this book is made up of so much more than not. tell us a little bit about the difficulty of really getting to the bottom of some of these reports, what was really going on with the fdic issue.

they didn't just respond to your freedom of information request. >> no, no they didn't. well, a lot of the work that we did in public records request we did while i was the reporter at the puget sound business journal. and i'm sure we will all never forget when we received those e-mails that we are trying to get -- we try to piece together exactly what it happened in the three weeks before wamu failed because it was extremely secret. none of the government agencies to talk to us. so we requested all these e-mails from the fdic which had shut wamu down and they all came back completely blacked out. all you can see in the subject line was wamu. in fact, we were just selling off that the only art in this book is one of those blacked out e-mails. we still have hundreds of them. in though, even during the book

process, i can't tell you how hard it was. the last chapter is just a blow-by-blow of what was happening in seattle, in washington d.c., new york and it was like pulling teeth. i mean, i had to rely mostly on public records to piece exactly what was going on because even three years later, no one wanted to talk about it. it's very controversial. >> and there are a lot of ruined the lives, broken hearts, including luke pepper. >> yeah, one of the tragedies of this story that i hadn't known before was that as kerry killinger is making all these decisions to build on risky mortgaging, luke had started writing letters to kerry and others at the bank saying, you shouldn't go down this road. this is not the way to go. 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 of being fair and caring and human and luke was so upset about this. but you can imagine his 2005 and luke had been away from the bank for so long to many shows up, everyone is busy. who wants to do with this guy like rattling around the office. so it was just a tragedy all around. >> and yet lucas so beloved. >> exactly. >> what surprised you the most in your reporting and writing of this book? >> you know, one of the things that surprised me and continues to surprise me every single day with the headlines were seen as 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

and even smaller ones like we just saw that huge collapse in iowa at the brokerage firm on so little regulation leading up into the crisis, the regulators of wamu were so focused on turf battles, who was in charge of regulating wamu. was it you going to do the exam the ear rather than actually doing the exam are paying attention to what was going on? and so, it is unbelievable to me still, really. >> and they are essentially paychecks depend on regulating lately, even though our president is a socialist month-long this model fascist goldwater republican. he continues to this day. >> it continues to this day. >> before this we are talking about the latest scandal, which

is libor. you can pretty much up in the paper and read about the latest regulator. >> fetisov libor. >> while kirsten, we are going to take questions now, but thanks for a wonderful limitation on the book and i know some people have written questions so that we don't have an obscene and they will bring them down. i have been told to ask tumor question. how come you got to go to "the wall street journal" and i didn't? [laughter] nevermind. we'll get back to that later. what happened to kerry? is still around town? >> yeah, he has a house in palm desert. i was wondering if sort of midlife crisis stage. he bought a couple houses in

palm desert and the city spends part of the time. >> did he get a no >> you know, actually never investigated the mortgage. we should ask about that. >> but is not really welcome at the reunions. >> no. i don't never see his name on the invite list. his ex-wife, debbie is, though. >> debbie is beloved. and rotella. >> unit back to new york so he is the president of wamu and had arrived in 2005 just for three years. so pretty much the second the bank failed, he moved back and he's working in financial services. it's not anywhere that we would have heard of. >> and the shareholders wiped out? >> wiped out. >> you have a very affect them kind of a can. i don't want to give away too much. >> the bank failed at the end.

>> we know that much. but you actually met with people who are not the high rollers, who just believed in the seattle draft. >> that was a sort of. they were just the short sellers in the last phase. there were a lot of mom-and-pop people in washington state across the country who have invested in wamu since their ipo in the 80s. so that looks like a thick stack. >> we have a thick stack. i'll have to take off my glasses so i can read. i am not screening this in advance, so if you wrote booker, bugger, bugger, it is on national television. i've asked this before. why should mr. challenger be in

prison? [applause] >> it's the best question to ask. >> so we've talked a lot about regulators, but we have not talked a lot about regulation. so there have been multiple investigations into wamu, including an extensive criminal investigation is there have been many other financial institutions. and the short answer is that there was no law at the time, and still not, to be honest if they can hang these guys on. they literally could find nothing illegal. and it wasn't for want of trying. and that is why we've still not seen in a high lovely is go to jail and why they are still trying to push forward of the massive financial reform they haven't been able to do. >> i don't also is for was for want of trying. >> they tried. >> when you 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 rewrite or change any part of the book, what would it be? >> that's a good question. i wonder if they mean if i would've written something differently or if the books history could've been different. the first one, if i would've written something differently. >> it's an interesting question. i would've love to talk to kerry killinger. so that would've changed the writing. i could've spent the entire book talking about the last month because there was just so many politics that went into the decision about how wamu was

seized on the west coast that we never knew about out here. >> it's very eliminating. has anyone been prosecuted, particularly executives. >> now, they have not. >> thursday fizzled attempt that went to a settlement. maybe want to briefly tell us about that. >> the fdic, a regulator to shut wamu town made an attempt to sue kerry killinger, steve rotella and they ended up that they sued for a billion dollars, which is unheard-of basically. they ended up settling out of court for a fraction of that. i think you are 64 million or something ridiculously low. and by the way, most of the settlement was covered by the executive's insurance policy at the bank.

so they have paid almost nothing either. >> they got away with it? >> yep. >> i'm going to picking a forget-me-not come back to you. for those of you and shares of sound savings, which was worse when it wamu, is there any chance their shares are worth anything? >> probably not, no. >> how would one find out? my suspicion is don't waste of brain damage. >> you would have to look through the bankruptcy court filing of the holding company, which is the one that filed for bankruptcy after wamu had seized. they reached a settlement earlier this year so shareholders did get a little bit back, but not a lie. >> hardly anything. >> do you think jpmorgan chase cotton extraordinary deal? the chip cecchini has implanted in my head will start to guide

me around in just a minute. let me finish the question. an extraordinary deal on the rss was low price justified by the associated problems? >> so, jpmorgan paid $1.9 billion for $307 billion in nonsense. they absolutely have a screaming bill. they felt that was justified because of all these terrible mortgages. let's be clear, these terrible mortgages have not kept jpmorgan for being profitable. they have barely dented the bank. and meanwhile, jpmorgan, the reason upon it wamu was for its vast network across the country and especially on the west coast. wamu a dozen of bridges. they have the branches now. they're doing great, so they got

an amazing deal, the deal of the century. >> too big to fail god bigger than we lost a 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 extreme end of any group they think during the financial crisis and none of them to my knowledge, i could be wrong about this, blew the whistle at wamu. there were along many of them on the board for years and they were very much sold by the amazing performance that kerry killinger delivered in the decades before. so they weren't really asking any tough questions until it was too late and then waited an extraordinarily long time to actually get rid of kerry killen and put a new management when they should have done it a year

or two before that. >> and these are even independent directors. >> but they were among the highest-paid port in the country. they were second only to that goldman sachs or something. >> you can see what money pays for her. >> ei. >> at the wall street collapse very, am i reading that right? to the u.s. and washington? did i get that right? does that make sense to you? >> no. >> we lost our biggest financial institution peer jpmorgan, we don't really have a major bank headquartered here anymore. so what were the consequences of that beyond the ecosystem that

was thousands of employees and vendors and so forth? >> absolutely. of course in the seattle area was a massive loss in a massive effect here. but as you pointed out, the today to fail institutions got bigger, right? so now instead of this bank that has been integrated into seattle and in this area is gone and we have five banks that are really controlling most of the assets in this country. >> and they are not here. the ceo doesn't live here. they don't contribute in the same way. [laughter] >> weak fcc as i read this thread, captured regulators ensured a mass. so what is to be done? >> i mean, if i had the solution, i would probably -- i don't know what i would be

doing, but maybe it's the next the. i don't know. i don't really know what the solution is. they're having trouble passing dodd-frank, which is our financial reform. it seems like even with more regulators in place, were still not making any and rose and regulating these financial institutions. and to actually break them up, that is an incredibly difficult proposition . so the way out is a mass. >> i could fix things if i working. break up the too big to exist banks, bring back glass-steagall. 38 pages. put in place incentives of the banks don't gamble because then there's the transaction is that they actually invest in making loans for productive economic activity. you put in place incentives that are not compensating excessive risk-taking. and you repeal citizens united and get politics out of the

system. i am a columnist. she actually reports the facts. you mention that china had no friends in washington d.c. why do you think we have heard a lot from our own representatives such as murray and cantwell? >> that is such a good question. so actually at the puget sound business journal what we're reporting on these journals, we reached out to her on multiple occasions because after wamu collapsed, they came out and say we're not going to lead this investigation. we are going to figure out and then it was radio silence. and she acknowledged cents in a

statement patty murray. [inaudible] >> can't well >> this questions is what do you think of the aftershock scenario of the u.s. economy and how will it affect the too big to fail banks? and if i read this right, the rest of us? >> the aftershock. >> i could speculate on what the app to shot defectives. the lingering quantify depression, the slowdown in asia, the euro zone as in the fact that the financial system is still engaged in incredibly risky behavior. are we talking about stickley is here? will go with my theory. what do you think? >> will i mean, everyone been affected by all these things right now nec jpmorgan chase master trader thomas is

basically about a, but in the way these institutions are so buried, but they are shielded because even with a massive trade and months, you still see jpmorgan reporting process. so there are very affect did, but we've created the system was a bigger just gigantic. >> and they know they will be bailed out by the taxpayers and that creates what economists call moral hazard. >> rate. >> describe -- this is a great question because we get too much inside baseball of the financial journalism world. describe the problems in here and the option on the product and its aggressive push by wamu. >> that is a great question because we actually didn't get into that. wamu was basically everybody knows tourney for a subprime

them. one of them are riskier projects in one of its biggest projects is the option armload. so this is this incredibly dodgy mortgage, where you could actually choose between various options each month at how you pay your loan. even a concept is unbelievable. so one of the options was to pay the minimum balance. and if you chose that option, than the amount you've are paying actually gets tacked on to your principal. so you are accruing debt, you just don't know it because you're fooling yourself, thinking you pay the minimum amount, which by the way everyone across the country did for the most part because when you get your mortgage, why wouldn't she pay the minimum amount? so what happened is all of these homeowners are adding to their debt. that's wamu with their subprime loans could sell these option arms for a ridiculous amount of money to wall street. they were eating them up like crazy. part of their big push was to

make a lot more option are mortgages, said they were making them like crazy. >> amazing, underwater city. how early wednesday negative publicity about wamu and where was that? i assumed publicity includes press reports. >> so wamu actually had kind of a big blowup in 2004 that wasn't really heard about, but what happened is we spoke a little bit about how they basically had no infrastructure at the bank. they were operating on 12 larger systems. all of that emerged around 2004 when they began basically trying to foreclose on homeowners who would actually pay their mortgage and the reason they did bad is because they literally forgot to tell someone to go open the security boxes in light

take out the homeowner shacks. this is how bad it got. saw the states started suing. all these analyst at a writing reports and these guys can't run a mortgage operation. this is what finally forced kerry killinger to go out and get a president and chief operating officer, which was stever tyler. so they were experiencing that bad publicity before. during the financial crisis, it was starting to get pretty bad in early 2007. >> and of course tv has a way of amplifying things that is different than the press. >> thank you for your book. i am a loan officer with 21 years experience in seattle and i can say quote, you got it right, unquote. this person's question is other than improvement, i don't recall any journalist saying this is a bubble in 2004, 2005.

did anyone else call it? yesterday. one of the reasons i was thrown out of feedbacks. [laughter] did you? >> now. absolutely not. >> i think that it was -- there were people in the financial press who are raising questions, but there is also the economic orthodoxy. most economists are very reassuring. and again i have the platform of a column, so i can call it. ariel robaina at aiu called it when he was an economist and not a journalist. to jpmorgan gain anything due to the wamu failure? jamie, are you out there? [laughter] anyway coming to jpmorgan gain anything due to the wamu failure?

>> they did nothing but gain anything. i mean, they gained more than 2000 branches across the country. all of those employees, the presence that wamu had and got it for basically no amount of money in this or that pesky mortgage problem they had to deal with. >> in the 1990s, wamu owner had control of large plants in southern california. one of the last pieces of original primal habitat in cities other than camp pendleton. what happened to the land? >> that is so interesting someone asked about that. i don't know the answer and i wish it did and i can tell you when i was researching, especially in the 90s i would often have to spend and the main amount of time or did not press clippings and a lot of stuff about that land kept coming up and i kept thinking i wish i had more time to think about this land because it sounds really interesting, but i never actually did. so unfortunately i don't know th