37 51 percent of subprime loans Gramlich, Subprime Mortgages, 21; Greg Ip, “Did Greenspan Add to Subprime Woes?” The Wall Street Journal, June 9, 2007.
38 “Like a city with a murder law” Gramlich, “Booms and Busts.”
39 “What we forgot” Johnson and Kwak, 13 Bankers, 142–44.
40 No Bush official wanted Jo Becker, Sheryl Gay Stolberg, and Stephen Labaton, “White House Philosophy Stoked Mortgage Bonfire,” The New York Times, December 21, 2008.
41 Mortgage debt had reached dangerous levels David Cay Johnston, “Business; In Debate Over Housing Bubble, a Winner Also Loses,” The New York Times, April 11, 2004.
42 Shiller’s warning was more stark Robert J. Shiller, “Household Reactions to Changes in Housing Wealth,” Discussion Paper 1459 (New Haven, CT: Cowles Foundation, Yale University, April 2004), http://cowles.econ.yale.edu.
43 “May be the biggest bubble in U.S. history” Robert J. Shiller, cited in Paul Krugman, “Running Out of Bubbles,” The New York Times, May 27, 2005.
44 “When home prices do start down” Fleckenstein, Greenspan’s Bubbles, 145.
45 Greenspan dismissed talk of a housing “bubble” Alan Greenspan, “The Economic Outlook,” opening statement, Joint Economic Committee, U.S. Congress, June 9, 2005; Johnson and Kwak, 13 Bankers, 147.
46 “Greenspan’s policies at the Fed” “Perry’s Public Service,” The Wall Street Journal, August 18, 2011.
47 Bank CEOs such as Killinger “Home Loans Discussion,” confidential memo from home loans president David Schneider to Washington Mutual board of directors, April 18, 2006; Exhibit 3, Levin subcommittee, hearing April 13, 2010.
48 Worried about the high level of risk Kerry Killinger, email to James Vanasek, March 10, 2005, Exhibit 78, Levin subcommittee.
49 Wall Street stock analysts asked Killinger Washington Mutual, pricing guides, November 2, 2006, belie Killinger’s contention about risk control. In November 2006, the bank was still offering huge bonuses to brokers for steering borrowers into high-risk Option ARMs.
50 “You’ve seen us sell” Kerry Killinger, Strategic Decisions Conference, Sanford C. Bernstein & Co., June 1, 2005.
51 The highest loan delinquency rate of any bank Office of Thrift Supervision, internal memo, April 14, 2005, Exhibit 8a, Levin subcommittee, April 13, 2010; James A. Vanasek, chief risk management officer, Washington Mutual, 1999–2005, statement to Levin subcommittee hearing, April 13, 2010. By comparison, Vanasek reported losses on fixed-rated thirty-year mortgages as less than one-tenth of 1 percent.
52 Had to be shut down entirely Senator Levin, opening statement, hearing, April 13, 2010; see also memorandum to Washington Mutual Board of Directors from General Auditor Randy Melby, April 17, 2006, Exhibit 10, Levin subcommittee, April 13, 2010.
53 Wall Street was so slow to detect Senator Levin, transcript, hearing, April 13, 2010, Senate Permanent Subcommittee on Investigations, 66, citing SEC filings by Washington Mutual, Levin noted that the bank’s Option ARM sales had been $67 billion in 2004 and $63 billion in 2005.
54 Option ARMs had been recklessly approved Ronald Cathcart, chief risk management officer, Washington Mutual, December 2005–April 2008, prepared statement, April 13, 2010, Levin subcommittee hearing.
55 “Employee malfeasance” Memo to James Vanasek, Washington Mutual, November 17, 2005, Exhibit 22a, Levin subcommittee; Retail Risk Overview, Washington Mutual Credit Risk Management, November 16, 2005, with attached chain of email messages, Exhibit 22b, Levin subcommittee, April 13, 2010.
56 The prime offenders Final report, “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” April 13, 2011, Levin subcommittee, 95–101.
57 “Extremely high incidence of confirmed fraud” Tim Bates, email to James Vanasek, August 30, 2004, Exhibit 23b, Levin subcommittee; “Memorandum of Results: AIG/UG and OTS Allegation of Loan Frauds Originated by [name deleted],” Washington Mutual, April 4, 2008, Exhibit 24, Levin Subcommittee, April 13, 2010; Ann Hedger, Office of Thrift Supervision examiner, “Loan Fraud Investigation,” to David Schneider, president of home loans, Washington Mutual, June 19, 2008, Exhibit 12a, Levin subcommittee, hearing, April 6, 2010, www.hsgac.senate.gov/public/_files/Financial_Crisis/041610Exhibits.pdf.
58 “Found to be completely fabricated” Washington Mutual, string of emails, August 29, 2005, to November 19, 2005, and December 14, 2007, Exhibits 23a and 23b, Levin subcommittee, April 13, 2010.
59 But no firings or shake-ups Loan Fraud Investigation Report, Washington Mutual, January 7, 2007, Exhibit 25, Levin subcommittee; Risk Mitigation and Mortgage Fraud Review, September 8, 2008, Exhibit 34, Levin subcommittee, April 13, 2010.
60 Insurance giant AIG “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” Majority and Minority Staff Report, Senate Permanent Subcommittee on Investigations, April 13, 2011, 96–101.
61 “Elements of fraud found by AIG” Loan Fraud Investigation Report, Washington Mutual, Jan. 7, 2007, Exhibit 25; Risk Mitigation and Mortgage Fraud Review, Sept. 8, 2008, Exhibit 34, Levin subcommittee, April 13, 2010.
62 Still, WaMu’s top brass Majority and Minority Staff Report, “Wall Street and the Financial Crisis,” April 13, 2011, 63.
63 WaMu’s leaders showered Fragoso “Awards Night Show Script,” Washington Mutual Home Loans President’s Club 2005—Maui, Exhibits 63a and 63b, Levin subcommittee, April 13, 2010.
64 Insider fraud was pervasive Federal Housing Finance Agency Inspector General Report, 2003, cited in “Fannie Mae Knew Early of Abuses, Report Says,” The New York Times, October 4, 2011.
65 The FBI first publicly warned “FBI Warns of Mortgage Fraud ‘Epidemic,’ ” CNN, September 17, 2004, http://articles.cnn.com.
66 Fraud was epidemic Richard Bitner, Confessions of a Subprime Lender: An Insider’s Tale of Greed, Fraud, and Ignorance (Hoboken, NJ: John Wiley & Sons, 2008), 39–72.
67 “More than 70 percent” Richard Bitner, prepared statement, Financial Crisis Inquiry Commission, April 7, 2010, http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010–0407-Transcript.pdf.
68 “ ‘Arts and crafts weekends’ ” William Black, interview, September 26, 2010.
69 “Open invitations to fraudsters” “Eighth Period Mortgage Fraud Case Report to Mortgage Bankers Association,” Mortgage Assets Research Institute, April 2006.
70 “Fraud or misrepresentation in almost every file” Fitch Ratings, “The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance,” November 28, 2007.
71 Hedge fund managers In The Big Short, Michael Lewis tells the compelling tale of how each of them doped out the ugly reality beneath the mythic conventional wisdom on Wall Street and in Washington and then took the risk of betting against the crowd, and won.
72 Long Beach Mortgage loans were attractive Goldman Sachs Flipbook, “Abacus 2007–AC1, $2 Billion Synthetic CDO,” February 26, 2007.
73 Goldman was accused of duplicity “SEC Accuses Goldman of Fraud in Housing Deal,” The New York Times, April 17, 2010; “Goldman Pays $550 Million to Settle Fraud Case,” The New York Times, July 16, 2010.
74 Paulson had included “Profiting from the Crash,” The Wall Street Journal, October 31, 2009.
75 Goldman’s double-dealing Gretchen Morgenson and Louise Story, “Banks Bundled Bad Debt, Bet Against It, and Won,” The New York Times, December 24, 2009.
76 “It makes me ill” Greg Smith, “Why I Am Leaving Goldman Sachs,” The New York Times, March 14, 2012.
77 Goldman executives took issue “Public Rebuke of Culture at Goldman Opens Debate,” The New York Times, March 15, 2012.
78 “Without those AAA ratings” “Bringing Down Wall Street as Ratings Let Loose Subprime Scourge,” Bloomberg, September 24, 2008, http://www.bloomberg.com; and “ ‘Race to Bottom’ at Moody’s, S&P Secured Subprime’s Boom, Bust,” Bloomberg, September
25, 2008, http://www.bloomberg.com.
79 A conflict of interest Eric Kolchinsky, internal Moody’s memo, August 28, 2009.
80 Moody’s earnings from exotic financial vehicles Elliot Blair Smith, “Bringing Down Wall Street as Rating Let Loose Subprime Scourge,” Bloomberg, September 24, 2008.
81 Bernanke said he saw no threat Binyamin Appelbaum and David Cho, “Fed’s Approach to Regulation Left Banks Exposed to Crisis,” The Washington Post, December 21, 2009; Ben Bernanke, “The Subprime Mortgage Market,” speech, Federal Reserve Bank of Chicago, May 17, 2007, http://www.federalreserve.gov.
82 “When the music stops” “Citigroup Chief Stays Bullish on Buy-Outs,” Financial Times, July 9, 2007.
83 Bond-rating agencies turned thumbs down “Rate Agencies Move Toward Downgrading Some Mortgage Bonds,” The New York Times, July 11, 2007; “Ratings Cut Near for Debt Products,” The New York Times, July 12, 2007; “Market Shock: AAA Rating May be Junk,” The New York Times, July 20, 2007.
84 “Caused hundreds of billions of losses” Eric Kolchinsky, statement to Financial Crisis Inquiry Commission, June 2, 2010.
85 “Making liars’ loans” Black, interview, September 26, 2010.
86 Find buyers who didn’t yet know the score Drew DeSilver, “Reckless Strategies Doomed WaMu,” Seattle Times, December 23, 2009; string of Washington Mutual emails, February 14–20, 2007, Exhibit 40b, Levin subcommittee; Dave Beck, testimony given April 13, 2010, Levin subcommittee.
87 The bank swooned “FDIC Crashes WaMu’s Birthday Bash,” Reuters, September 25, 2008, http://blogs.reuters.com.
88 Killinger walked off with more than $100 million Washington Mutual Securities Litigation, amended class action complaint, U.S. Western District Court, Seattle, WA, June 15, 2009, http://www.blbglaw.com.
89 “Clearly criminal in certain cases” Alan Greenspan, remarks, Federal Reserve Bank of Atlanta, November 6, 2010, http://www.federalreserve.gov; http://dailybail.com/home/bombshell-video-greenspan-admits-to-rampant-fraud-illegal-ac.html.
90 Did not trigger criminal action Joe Nocera, “Biggest Fish Face Little Risk of Being Caught,” The New York Times, February 26, 2011.
91 Countrywide, an aggressive subprime lender “Countrywide Will Settle a Bias Suit,” The New York Times, December 21, 2011.
92 Angelo Mozilo, agreed “Lending Magnate Settles Fraud Case,” The New York Times, October 15, 2010. In an email in April 2006, Mozilo had told a business colleague that “in all my years in the business, I have never seen a more toxic product” than the subprime loans that Countrywide was then selling.
93 Mozilo’s personal fine “Big Payday Awaits Chairman After Countrywide Sale,” The Washington Post, January 12, 2008.
94 Washington Mutual was targeted “Feds Sue WaMu Ex-CEO Killinger and Two Others,” Seattle Times, March 17, 2011; “F.D.I.C. Sues Ex-Chief of Big Bank That Failed,” The New York Times, March 17, 2011.
95 The bank executives scoffed “WaMu Ex-CEO: Lawsuit ‘Unworthy of the Government,’ ” The Wall Street Journal, March 17, 2011.
96 FDIC collected $190 million in damages Gretchen Morgenson, “Slapped Wrists at WaMu,” The New York Times, Sunday financial section, December 18, 2011.
97 “Bank executives can beat the system” Senator Carl Levin, office press release, “Statement on Settlement of Claims Against Washington Mutual Bank,” December 13, 2011, http://levin.senate.gov.
98 The pattern was familiar Edward Wyatt, “Promises Made, and Remade, in S.E.C. Fraud Cases,” The New York Times, November 8, 2011.
99 Going back to multibillion-dollar profits Zachary A. Goldfarb, “Wall Street’s Resurgent Prosperity Frustrates Its Claims and Obama’s,” The Washington Post, November 7, 2011.
100 A foreclosure assembly line “Only 1 in 4 Got Mortgage Relief,” The Wall Street Journal, February 28, 2011.
101 Found themselves stuck “Banks Amass Glut of Homes, Chilling Sales,” The New York Times, May 23, 2011.
102 Banks agreed in February 2012 Nelson D. Schwartz and Sheila Dewan, “States Negotiate $26 Billion Agreement for Homeowners,” The New York Times, February 9, 2012, and Nelson D. Schwartz and Julie Creswell, “Mortgage Plan Gives Billions to Homeowners, but with Exceptions,” The New York Times, February 10, 2012.
103 Only 894,000 were ultimately helped Zachary A. Goldfarb, “Obama’s Efforts to Aid Homeowners, Boost Housing Market, Fall Far Short of Goal,” The Washington Post, October 23, 2011; “Home Lending Revamp Planned,” The Wall Street Journal, October 24, 2011.
104 Compounded the problem by moving slowly Annie Lowrey, “Treasury Faulted in Effort to Relive Homeowners,” The New York Times, April 12, 2012.
105 The banking lobby succeeded Stephen Labaton, “Ailing Banks Still Field Strong Lobby at Capitol,” The New York Times, June 5, 2009.
106 “Hard to believe” Senator Richard Durbin, interview with Ray Hanania, WJJG, Chicago, April 27, 2009.
107 The experts have come up with ideas Floyd Norris, “Time to Accelerate the House Recovery,” The New York Times, December 2, 2011; Ezra Klein, “Mass Refinancing: The ‘Biggest Thing’ Obama Can Do Without Congress,” The Washington Post, January 10, 2012; “President to Offer Way for Easing Home Debt,” The New York Times, January 25, 2012.
108 Give a shot in the arm to the economy Lawrence Summers, “Why the Housing Burden Stalls America’s Economic Recovery,” Financial Times, October 23, 2011, http://www.ft.com; Paul Krugman, “It’s Not a Banking Problem,” The New York Times blog, May 13, 2011, http://krugman.blogs.nytimes.com.
109 “We won’t come back big time until” Warren Buffett, interview transcript, PBS, Charlie Rose, August 17, 2011, http://www.cnbc.com.
CHAPTER 15: OFFSHORING THE DREAM
1 “Wal-Mart and China have” Excerpt of interview of Gary Gereffi for the Frontline program “Is Wal-Mart Good for America?,” September 9, 2004, http://www.pbs.org/frontline.
2 “Over the past 8 years” Dan Slane, “On the U.S.-China Relationship & Manufacturing,” presentation, Ohio State University, October 25, 2010, http://www.omi.osu.edu.
3 Rubbermaid made them “America’s Most Admired Company—It’s Rubbermaid,” Fortune, February 7, 1994.
4 “A lot of this stuff” Excerpt of interview of Larry Ptak for the Frontline program “Is Wal-Mart Good for America?,” June 16, 2004, http://www.pbs.org/frontline.
5 “ ‘We’re shutting it down’ ” Excerpt of interview of Harry Frank for the Frontline program “Is Wal-Mart Good for America?,” June 16, 2004.
6 “They’re from all over” Excerpt of interview of Scott Mihalic for the Frontline program “Is Wal-Mart Good for America?,” June 16, 2004, http://www.pbs.org/frontline.
7 “You could have bought a home for nothing” Larry Ptak, interview, June 16, 2010.
8 Rubbermaid’s most important customer Excerpt of interview of Stanley Gault for the Frontline program “Is Wal-Mart Good for America?,” http://www.pbs.org/frontline.
9 Can also cut a supplier to ribbons “Rubbermaid Shares Plunge as Rising Raw Material Prices Cut Profits,” Bloomberg Business News-AP, Milwaukee Journal Sentinel, September 5, 1996.
10 Rubbermaid was intent Excerpt of interview of Wolfgang Schmitt for the Frontline program “Is Wal-Mart Good for America?,” June 17, 2004, http://www.pbs.org/frontline.
11 “We’re just not gonna take it” Excerpt of interview of Carol Troyer for the Frontline program “Is Wal-Mart Good for America?,” June 3, 2004, http://www.pbs.org/frontline.
12 “You don’t understand” Excerpt of interview of John Mariotti for the Frontline program “Is Wal-Mart Good for America?,” March 25, 2004.
13 “Signs of the decline of Rubbermaid” Ibid.
14 Pivotal shift of power in American business In a series of studies on U.S. job losses to China, Robe
rt E. Scott, senior economist at the Economic Policy Institute, calculated a loss of 2.4 million jobs from 2001 to 2008, another 500,000 jobs in 2010, and a cumulative job loss of 3.5 million to 3.6 million from the 1990s through 2010. Robert E. Scott, “Unfair China Trade Costs Local Jobs: 2.4 Million Jobs Lost, Thousands Displaced in Every U.S. Congressional District,” EPI Briefing Paper 260, March 23, 2010, Economic Policy Institute, http://www.epi.org; Scott, “Rising China Trade Deficit Will Cost One-Half Million U.S. Jobs in 2010,” EPI Briefing Paper 283, September 20, 2010, Economic Policy Institute, http://www.epi.org. Per Scott interview, January 21, 2011, cumulative job losses are 3.5 million to 3.6 million from 1990s to end of 2010.
15 Time for Wal-Mart to build muscle “Walmart 2011 Annual Report,” April 18, 2011, 4, http://www.walmartstores.com.
16 Cut America’s overall inflation Global Insight, “The Price Impact of Wal-Mart: An Update Through 2006,” February 4, 2007, http://www.ihsglobalinsight.com.
17 “In the nineteenth century” Excerpt of interview of Nelson Lichtenstein for the Frontline program “Is Wal-Mart Good for America?,” June 9, 2004.
18 “It tells me the sales price” Excerpt of interview of Linda Dillman for the Frontline program “Is Wal-Mart Good for America?,” September 17, 2004, http://www.pbs.org/frontline.
19 “A can of 9Lives cat food” Jon Lehman, interview, October 7, 2004.
20 “Wal-Mart, as an efficiency machine” Gary Gereffi, interview excerpt from Frontline, “Is Wal-Mart Good for America?”
21 “The push system involved manufacturers” Excerpt of interview of Edna Bonacich for the Frontline program “Is Wal-Mart Good for America?,” June 9, 2004, http://www.pbs.org/frontline.
Who Stole the American Dream? Page 52
