in u.s. history. she was a pulitzer prize cofinallist. this is about an hour.

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 cultu 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 t tell us about a that a little b >> 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 reall mutual funds and everyone at th 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 t background of kerry, that you p 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 ba he put himself through state sc 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 repor but there was nothing crazier unusual about him. >> except he was a trump tear. he was a trumenter. >> except he was a trumper. >> times he would play the trumpet at work and employee activities it was perhaps a little bit str but not for them they had a quirky fun culture. kerry is the on only one that was an actual >> he went on on accusation and

he went on an acquisition spree for at least a thrift was pretty awesome. why adopt you tell us about that. >> absolutely. kerry took over the very small bank, in 1990, and he the fabulous team of peo surrounding him that luke peppe had chosen. together they worked like clock across the west coast and across the country buying banks left and right. it was during the merger and acquisition 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 a >> 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. >> abs so, you know, we don't think about these things. we just think of our bank as a bank, re but when they buy another bank, it's a complicated, terrifying you suddenly have two bank groups have to combine all of the systems. and they do 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 acquisiti they were able to do it in a wa that the customer wouldn't notice it. i mean, this is a bank that was very efficient at anything they did. and when they came in to these they were frugal. they took away all the corpora 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 expensive trappings and high right office building. they flew coach everywhere. at least at that point. > we're still in the '90s. >> there was this kind of, again, almost like a thriller there wa 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 of asset 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 the company made sub prime loan finance made mortgages to peopl with who had credit not that gr and their thinking at the time was well, we have all these requirements under the communit 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 one of their chief guy, his nam is craig went out looking aroun for a good sub prime lender to he landed on long beach mortgag 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 tha 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 cal which was very much would becom 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 r. gnars that's what they had dope beforehand. long beach didn't actually tal to any people. didn't talk to the customer. they just bought loans, they bought loans throug brokers, which didn't work for there were the third party people out doctor accumulating the loans. so that's a very unsafe system because there's n quality-control involved in tha

>> 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 wante 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 pr >> investors were pie -- buying and paying more money than any other mortgage. in the mortgage 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 suddenl 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 le 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 happene >> 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 fai

the problem that started long before that. we can point to 2000 that's when they started do down him. it was that point tha killinger said we want to becom the biggest mortgage lender and he internally began a push in t risky mortgage lending soon after that. there's slogan turn from fend of the family to power of yes. and the power of yes wo 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 h they were a real commercial ban and washington mutual was a thr 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 controlle or the fredz. -- feds. it is the largest failure but it seems like 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 ba >> that's a good point. absolut they weren't actually a bank. if you will. they were a thrift. and also, it's important to point out under their charter i 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 it a passion. he hated mortgage lending, and he hated investment bankers. take that for what it's worth. things started to change. kerry changed, tight end management group started grow apart, maybe you want to walk us through tha. . >> so two things started happening at once around the 2000 time frame. it was a crucial time frame fo 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 >> [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 -- yo 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 culture. a lot of 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 oe and the culture began to deor it areauate. >> 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 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 >> that was in 2000. >> it was in 2003. you remember a couple of years ago we heard about how you know, couldn't really -- this is still going on, by the but it really came to the limelight a couple of years ago they couldn't foreclosure upon people they didn't the paperwor 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 g and do a massive overhaul and that was long before any of us would hear anything about sub prime loans. why did killinger

>>, i mean, you know. it's a good question. i spent a lot of time asking people that questio i don't -- i think that it's very hard for anyone to stand u and have the whole country tell you over and over again how great you are and how you're th 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 and he really became a differen he in some ways, he became bett he became more chai's charismat he started wearing fancy clothe 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 dissatis >> 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 -- [ 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 happine you center to have a house. if you don't sell that house every couple of years you're not bein 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 term 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 exag when i say that literally dead people were getting mortgages. in fact, there's a one -- there's -- i couldn't believe i there's one about dote in the book that the chief legal officer fold me about where the were investigating one of the loans coming through the bank, and it was a guy named or say f 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 he 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 mortgag >> right. was there an understanding in the front office of the complexity in

which these mortgages were bein up through the chain? >> there was -- the headquarter, i believe had some understanding. at least i would like to believ 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 ba at all. but at the back of thei 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 th 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 mortg we're making a ton of money. it looked good at the time. >> exa i know, in a kiefs bank of america some of the banks i covered that the regulators wer 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 bank spent literally hundreds of millions of dollars to get stegall repealed and get the lightest regulation possible. what was it like for washington >> washington mutual main regulator no longer exists actu the office ots, sorry, the office of supervision, the interesting thing about the ots was formed after the savings an

loan crisis in the . >> '95. >> of the banking regulators it really had this infur 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 len you saw they were -- there was very lax regulation, obviously. there was just not a lot of attention being paid to what wa going on. >> whether the crisis

unstoppable, there are efforts made to save the institution. hand cap those efforts for us. what was the changes? >> of sur? . >> well, i want to get in to that a little bit later. but when private equity, you know, texas parter ins very good record. they decided to put money in to this. >> yes. >> it seems like there's a little breathing room. >> right. >> killinger is forced out. >> yes. >> there's a new ceo for what? six weeks. >> so the crisis -- they say it happened slowly and then quickly, right. that was absolutely the case there. it began to get very bad. all of their issues in

internally their internal control had fallen apart. ed at one point they were making mortgages on 12 different systems. they had grown so fast that their there was just no control internally their mortgage division had ballooned out control. they a mas eve trading desk. they turn the in to not a mortgage lender as they were there fifteen years earlier but almost a mortgage middle man they were sucking up mortgages and spitting them out and making a lot of money in2010. they turned in to this just as houses crisis which had been going up a ton every year began to crash. really began to crash. suddenly they are left with all these holding us these risky mortgages and the homeowners that could have refinanced couldn't anymore because the housing crisis weren't there to support it. suddenly they which had been

profitability for how many years at that point kerry killinger always returned amazing returns they were eating away at the capital cushy. they needed more money in the spring of 2008 they decide, we are going either try and sell the bank or we're going raise private equity. ..

to start to see these things that the timing was just off, you know, missed it by that much, maxwell smart. on so many friends because there came a point where the sad and overruling at the fdic tim geithner and hank paulson said were going to back everybody with everything. they were never going to have another wamu. but washington mutual did not have political pull in washington d.c. washington mutual was not a mere bank and yet there was this very healthy part of washington mutual in the 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 new york with rumors that started at least a bank job. >> you could call it a jog. so politics become a very important issue here like you point out. so kerry killinger had never made a priority is building up relationships in washington d.c. so wamu did not have almost any friends back there. meanwhile there were bankers like jamie diamond you considered a 37 line of business. so wamu finds itself after it raised the money in the summer of two decimate in the middle of a panic situation. you all may remember the lines around the block and people pulling out their money and it's

a wonderful life and how could this happen and everyone panicked. what no one knew is that wamu suffered a run that was far bigger than andy mac 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 panicked about this run called hank paulson, then the treasury secretary because he heard there was going to be in negative media reports coming out about wamu and was scared of it as people to pull money out. he gets and posts them on the phone and hank paulson tells them essentially that 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 as you enter september 2008.

>> and there's a whispering campaign in new york against washington. >> exactly because jpmorgan did not get the bank in the spring of 2008. jpmorgan is not a bank that likes to lose. they were not happy to have not one wamu in the spring. and said they were off on the sidelines biding their time essentially until they could return and have another opportunity. and so you could bet they are taken that opportunity to meet with regulators, talk with regulators and often about wamu. >> now we were both on the story for different publications, covering at the same time. i am a columnist can make you 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

reports, what was really going on with the fdic. they didn't just respond to your freedom of information requests. >> no they didn't. a lot of the work we did in public records request was while i was a reporter at "puget sound business." i'm sure will all never forget when we received this e-mail that we try to get, we're trying to piece together exactly what happened in the three weeks before wamu failed because it was extremely secretive. none of the government agencies to talk to us. so we requested the females from the fdic, which had shut wamu down and they all came back completely black out. all you can see in the subject line was wamu. in fact, we were so in that the only art in this book is one of those black e-mails.

and we still have hundreds of them. and so you venture into the 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, washington d.c., a new york. you have 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. >> host: and there are a lot of ruined lives, broken hearts, including luke pepper. >> yes, one of the tragedies of this story and i hadn't known before was as kerry killinger is making decisions to build up risky mortgage lending, lou has started writing these letters to kerry and some others at the

bank on it 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 blamed and 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 just so upset about this. the you can imagine its 2005 and luke have been away from the bank for so long. when he shows up everyone is busy. who wants to do with this guy rattling around the office, so it was just a tragedy all around. >> and yet, still beloved. >> exactly, yeah. >> was a pricey for most in the 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 we see us 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 institution and even smaller ones coming in now, like we just saw the huge collapse in iowa of the brokerage firms and so little regulation leading up into the crisis, they were so focused on turf battles, who is actually in charge of regulating wamu? should it be you doing to expand? is either rather than doing the exam are paying attention to what was going on. and so i just -- it is unbelievable to me still really. >> and they are essentially the paychecks are regulating lately, even though our president is a socialist muslim islam all fascist goldwater republican. it continues to this day.

>> it continues to this day. just before this we were talking about the latest scandal, which is libor. you can pretty much up in the paper and read about the latest regulator mats. >> spelled libor. wow, kerry stand, we are going to take questions now, but thanks for a wonderful than the nation on the book and innocent people have written questions so we don't have a mob scene and they will bring them down. i've been told to ask to more questions. how come you got to go to "the wall street journal" and i didn't? nevermind. we'll get back to that later. what happened to kerry? is he still around town like >> area still rattling around town a cheer. he has a house in palm desert.

i was wondering assertive middle east crisis stage he bought a couple houses in palm desert from the city spends part time. >> did he get a no doc loan? >> you know, i actually never investigated the mortgage. i should ask about them. >> but he's not really welcome at the reunions? >> no. i don't never see his name on the list. his ex-wife, debbie is. >> and rotella aquatic >> he moved back to new york permissively as the president of wamu and had arrived in 2005 for three years. and pretty much the second the bank failed he moved back. and i hear he's working in financial services, but anyone he had heard us. >> and the shareholders wiped out? >> and you have a very affecting kind of hook and.

but the bank failed. >> we know that much. but you actually, you would people who were not the highrollers, just believed in the seattle thrift. >> that 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 across the country who had invested since they are ipo in the 80s, so that looks like a big sack. >> is a big stack. i'll take of my classes so i can read and figure that out at home. i am not screening the senate dance, so it's going to be on national television. i vastness before.

why should mr. killen derby in prison? [applause] >> this is the best question to ask. >> superstack a lot about the regulators, but we haven't talked a lot about the regulation. there have been multiple investigations into wamu as 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 could hang these guys on. they literally could find nothing illegal and it wasn't for want of trying and that is why we still not seen any high-level executives go to jail and why they are still trying to push forward on this massive financial refund they haven't been able to do. >> add-on author was for want of

trying. >> they tried. you have a corporate lawyer as attorney general and the banks frankly on the place as dick durbin said about the senate, there was an urge to prosecute. now there were three questions on this. i will forget you. i just want to be fair to others. if you could rewrite to change any part of the book, what would it be? >> is a good question. i wonder if they mean if i would've written some indifferently over at the books history could have been different. the first one, if i would've written something differently. that's an interesting question. i would've loved to to actually talk to kerry killinger. i would have been nice. so that would've changed the writing. i could've spent the entire book talking about the last month

because there is just many politics that went into the decision about how wamu receives that we just never knew about out here. >> yeah, very illuminating. has anyone been prosecuted, executives? >> now, they have not. >> there is a result attempt that led to a settlement. maybe want to briefly tell us about that. >> the fdic, was a regulator that showed wamu down made an attempt to sue kerry killinger, steve rotella and head of the mortgage division and ended up they sued $4 billion, which is unheard of basically and they ended up settling out of court for a fraction of that. i think it was 64 million or something ridiculously low.

and by the way, most of the settlement was covered by the executive insurance policy at the bank. so they have paid almost nothing either. >> they got away with it. >> measures another multi-store picking picking up forget-me-not try to come back to you. for those of you who have shares in sounds ratings, which was worse with wamu, is there any chance the shares are worth anything? >> probably not, no. >> how would one find out? my suspicion is to raise the brain damages. >> you would have to look for the bankruptcy court filing of the holding company, which is the one that filed for bankruptcy after wamu had to use. they have the leverage to settlement finally earlier this year, so shareholders did get a little bit back, but not a lot. hardly anything. >> do you think jpmorgan chase gotten extraordinary jail?

[laughter] 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 the wamu assets or was the low price justified by the associated problems? >> so jpmorgan paid $1.9 billion for a bank with $307 billion in assays. so they absolutely cannot be screaming deal. now, they felt was justified because of all these terrible mortgages. but let's be clear, these terrible mortgages have not kept jpmorgan from being profitable. they've barely dented the bank. and meanwhile, jpmorgan, the reason i wanted wamu anyway was froze fast branch network across the country and especially on the west coast. wamu up as their branches,

jpmorgan only on the east coast and they have those branches now. they're doing great, so they got an amazing deal, the deal of the century. >> too big to fail cut bigger and we lost a major corporate headquarters. what about the auditors, deloitte & touche, what about the board? why didn't they blow the whistle? why did they come forward? >> auditors have been the most under examined if any group since the financial crisis. and none of them to my knowledge, i could be wrong about this, blew the whistle at wamu. many of them had then on the board and they were very emotional by the amazing performance delivered in the decades before. so they were really asking any tough questions until it was too late and then waited an extraordinary long time to get

rid of kerry killinger when they should've done it a year or two before that. >> it was not just a mob with network. >> there among the highest-paid board next to goldman sachs or something. >> you can see what money pays for. >> did the wall street callout of dairy, am i reading that right, tanks and u.s. and washington, did i get that right? who are very -- does that make sense to you? >> now. >> we lost our biggest financial institution. jpmorgan, we don't really have a major bank headquartered here

anymore. 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 it was just a massive loss. but as you pointed out, the too big to fail institutions got bigger, so now this bank that had been into seattle in this area is gone and we have five banks really controlling most of the assays. >> and they are not here. the ceo doesn't live here. it is just one of their fireworks. >> on the order federal reserve captured regulators ensured en masse. 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 it's 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. and it seems like even with more regulators in place, we are still not making any inroads in regulating financial institutions. and to actually break them up, that's an incredibly difficult proposition , so the way out is a mess. >> i could fix things if i working. break up the two big to exist things, bring black glass-steagall. 38 pages. [applause] put in place incentives of the banks don't gamble because vendors tense action track and they actually impressed economic activity. you put in place incentives said

they are not compensating excessive risk-taking and you've got to repeal citizens united and get politics out of the system. [applause] i am a columnist, she actually reports the facts. you mentioned that wamu had no friends in washington d.c. why do you think we haven't heard a lot from our representatives such as murray and cantwell. >> is such a good question. >> actually at the "puget sound business," we reached out to her on multiple occasions because after wamu collapsed, she made this very big show of coming out and say we are going to lead this investigation into this collapse. you know, we are going to figure out what happened in that it was radio silence. and so she has been extremely quiet on everything and didn't

really do anything for the book either in is just basically, to my knowledge, kind of ignored it since in same patty murray. [inaudible] >> cantwell. >> the discretion says, what do you think of the aftershock scenario for the u.s. economy and how will it affect the two big to fail banks and that i read this right, the rest of us? >> the aftershock? >> i could speculate on what the aftershock effect is. the lingering cause i depression , the slowdown in asia, the euro zone as and the fact the the financial system is still engaged in an incredibly risky behavior. are we talking about stiglitz here? will go with my theory. what do you think? >> well, everyone is being

affected by all of these things right now and you see jpmorgan chase massive trading loss that was basically a bad debt on your upright. but in a way, these institutions are so vague that they are shielded almost a bed because he thought that massive trading mott can you still see jpmorgan reporting assets. so they are all very affected. we've all created the system at the bakery just gigantic. >> they know they will be built up by the taxpayer. >> exactly. >> that creates moral hazard. >> this describes a great question because we get a little too much inside baseball and the financial journalism world, all three of us. describe the problems inherent in the option or product and its aggressive push by wamu.

>> that's a great question because we actually didn't get into that. wamu is basically a furnace wamu for a subprime team. one of them are riskier products and actually one of the biggest products is the option armload. so this was this incredibly dodgy mortgage, where you could actually choose between various options each month at how you pay your loan. even that concept is unbelievable. so one of the options was to pay the minimum balance. and if you chose that option, the amount you were paying gets tacked onto your principle. so you're accruing debt, you just don't know because you're fooling yourself thinking you're paying the minimum amount of which by the way everyone across the country did for the most part because when you get your mortgage bill, why would she pay the minimum amount? so what happened is all of these homeowners were adding to the debt, the wamu like what they're subprime loans could sell this

option arms for a ridiculous amount of money to wall street. they repeated them up like crazy. part of the big push was to make a lot more option on mortgages. there are make in them like crazy. >> amazing. underwater city. how early wednesday negative publicity about kirsten grind and where was that? i assume publicity includes press reports. >> so wamu had kind of a big blowup in 2004 there was similarly heard about, but what happened is they are poor -- he spoke a little bit about how they basically had no infrastructure on 12 different mortgage systems. well, all of that emerged in 2004 when they began basically trying to foreclose on homeowners who would actually pay their mortgage.

and the reason they did that is because they literally forgot to tell someone to go up and the security boxes and pick up the homeowners checks. this is how bad it got. all the states started soon and come all the analyst started writing reports and these guys can't run a mortgage operation. this is what in fact finally forced kerry killinger to get a president and officer, which was steve rotella. said they were experiencing that bad publicity before. during the financial crisis, i mean, i think we're starting to get pretty bad in early 2007. >> and of course tv has a way of amplifying things that is different than the price. thank you for your book. i am alone not say with 21 years of experience in seattle and i can say, you got it right, unquote. and this person's question is other than approve meant i don't

recall any journalist and this is a bubble in 2004, 2005. did anyone else call it clicks yes i one of the reasons i was thrown out of phoenix. [laughter] did you? >> now, my gosh, absolutely not. >> at think it was they were people in the financial prize who were raising questions, but there is also the economic orthodoxy most economists were very reassuring. and again i had the platform of the column so i could call it nor nota bene an angry you called it, but he was an economist and not a journalist. to jpmorgan gained anything due to the wamu failure? jeremy are you out there?

anyway, to jpmorgan gained anything due to the wamu failure? >> yes, they did nothing but gain anything. i mean, they gained more than 2000 branches across the country. all of the employees, the presence that wamu hat and they got it for basically no amount of money in assorted pesky mortgage problem they had to deal with. >> and an 1890s, wamu under her control of a large piece of undeveloped planet southern california. one of the last pieces of original habitats near cities other than camp pendleton. what happened to the land? >> has some 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 often have to spend an insane amount of time reading old press clippings and a lot of stuff about that land kept coming up. i kept thinking i wish i had

more time to talk about this land, but i never did. so unfortunately i don't know the answer. >> and i'm sorry to say and being given the signal to wind things up. this was done in a total fair fashion and we will be around later. but the last question is after the last collapse of wamu, losing money, stock fall into a few cents, sales are jpmorgan, where does the 20 million come from to pay a bonus to kerry killinger? >> that is a great question. apparently there was just enough money left. last not >> where do i get a job like that? kirsten grind, the book is "the lost bank." thank you so much for being here tonight. [applause] >> all this week, watch c-span