Wednesday, April 14, 2010

NPR: Did WaMu's fraud lower rest of market?

Kai Ryssdal: For a long time, Washington Mutual had this catchy tagline it used in its ads to show that it could help everybody buy a home. The "power of yes," it went. As new congressional investigations show, WaMu wasn't just talking the talk. Widespread fraud let it say yes to just about everybody, which might have helped set the bar for everybody else.

Marketplace's Alisa Roth reports.

ALISA ROTH: The stories this investigation have turned up are pretty alarming. WaMu gave bonuses for selling higher risk loans. There were also bonuses for using things like higher interest rates or extra points to over-charge clients. Employees even helped loans get processed faster by falsifying bank statements.

John Coffee is an expert on securities law and corporate governance at Columbia. He says the easiest way for a bank to increase its profitability in the short-term is to take on more risk.

JOHN COFFEE: And that can arguably produce the lemming-like race over the cliff as each institution increases its level of risk because it wants to have its profitability look at least comparable to its rivals.

He says WaMu was one of a lot of institutions in the game.

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