WaMu, Lehman and Fraud

The FT reports that the underwriting at Washington Mutual leading up to its spectacular implosion was "riddled" with fraud, according to a 500 page report being released today. Apparently, fraud rates of 58% and 83% were found in two of Wa Mu's California's offices. Furthermore, nobody at the bank did anything to stop the rampant lying and fraud. The WSJ quotes Stephen Rotella, a former president and COO, at WaMu in a 2007 email that he thought Wa Mu's home-loan division was the worst managed business he'd ever seen in his career, until he saw the company's subprime unit. In any event, former CEO Kerry Killinger, defended his actions, as well as I'm sure the over $100 million he collected in pay during his time at the helm. I mean, it's not easy blowing up the country's largest S&L in five year's time by encouraging employees to commit fraud. It's gotta be worth at least $100 mil.

Meanwhile, in other completely not shocking news for anyone who actually followed what was going on at our nation's banks, the NYT has an article today that discusses Lehman's use of a company that it likely controlled called Hudson Castle, where the investment bank liked to park its risk. If the 2200 page Lehman examiner's report didn't convince you that something was amiss at the investment bank, perhaps this will. Hudson Castle created four separate vehicles, one of which was called Fenway, that issued commercial paper and then used that money to do repos with Lehman. Now read the direct quote from the NYT article: "Lehman itself bought $3 billion of Fenway notes just before its bankruptcy that, in turn, were used to back a loan from Fenway to a Lehman subsidiary." The loan was secured by Lehman's investment in a California property developer, SunCal, which owned a bunch of land. Seriously? Yeah, no fraud going on there.