Washington Mutual's bad day

Move over, Countrywide; WaMu just declared a billion-dollar loss. The subprime killer strikes again.

Published April 15, 2008 10:28PM (EDT)

Sometimes I wonder whether the gods are playing some kind of twisted joke on me. My home mortgage is serviced by Countrywide and my bank is Washington Mutual. You would be hard put to find two companies that bet more recklessly on the housing boom, or were up to their necks deeper in risky subprime loans and exotic adjustable rate mortgages. Of course, I was unaware of these facts when I first started covering the housing bust. But I've watched in stupefied fascination as the two institutions with which I have the most intimate financial relationships have proven themselves enormously incompetent and deeply embedded in the biggest economic meltdown in memory.

Just lucky, I guess.

After the markets closed on Tuesday, Washington Mutual announced a first-quarter loss of $1.14 billion, and the resignation of a member of its board, Mary Pugh, who had headed the board's finance committee. Pugh's resignation could be interpreted as a victory for the Change to Win Investment Group, a shareholder activist outfit representing the interests of pension funds affiliated with the unions that make up Change to Win (including the Teamsters, United Farm Workers and Service Employees International Union). In a letter sent to the board on March 27, Change to Win argued that, as head of the finance committee, Pugh should have steered Washington Mutual away from riskier subprime waters.

How fast the mighty fall. During Black History Month in February 2007, the Seattle Press-Intelligencer profiled Pugh, who runs her own fixed income investment company, Pugh Capital Management. Back then, Washington Mutual CEO Kerry Killinger would reminisce about how the two of them would make major investment decisions while playing horse at a basketball hoop set up near her corner office. "She would very often make smarter investment decisions than what the guys were doing on Wall Street," said Killinger.

Well, not exactly, it would seem. Like the guys on Wall Street, she risked too much and got burned. Which, if you like, offers a positive angle on this dreary tale of greed and stupidity. Too many of the fall guys in the great credit crunch debacle have been the same-old same-old alpha males of Wall Street. Can we call it social progress that at least one African-American woman was in the game, too?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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