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One by one, the investors’ interest withdrew—there were simply too many toxic loans on WaMu’s books and too much uncertainty about the scope of the losses. Chase and Citi were the last two to remain in, but when Lehman Brothers filed for bankruptcy on September 15, market conditions worsened significantly and WaMu experienced another $10 billion in deposit withdrawals. It was unlikely that WaMu would survive unless it started borrowing from the Federal Reserve Board’s discount window. However, Fed lending—like FHLB lending—is heavily collateralized, meaning that the more a bank borrows from those sources, the more expensive it becomes for the FDIC to resolve. For that reason, the law prohibits the Fed from lending to a failing institution, and as a matter of courtesy, the Fed typically consults with us before lending to a troubled bank and does so only with our consent. As WaMu continued to hemorrhage deposits, David Bonderman reached out to Fed Governor Kevin Warsh for help. Kevin referred the call to Don Kohn, who had been our primary contact on the WaMu situation. Don and I held a conference call with Bonderman on Saturday, September 20, and I was shocked at the combative way Bonderman pressed Don for access to Fed lending. Don held firm. We told Bonderman that he needed to continue with efforts to sell or recapitalize the bank.
Bull by the Horns
Sheila Bair
Most revealingly, many of the people on the list contributed to both parties. Indeed, real estate developers are infamous as political contributors. Many of them strike it big by getting a zoning change from the local commission or obtaining a license to develop a facility from a state agency. Real estate developers commonly donate to both parties. In early 1987, Texas S&L insiders held a Republican fund-raiser at which Treasury Secretary Baker was the featured speaker. Baker sat next to Don Dixon of Vernon Savings. Dixon had also contributed to the DCCC. In 1987 he was the worst known control fraud in the nation; he was on the prosecutors’ list of 400 names. When Wright saw his name on that list he thought “Democratic contributor.” Similarly, Craig Hall contributed to the Republicans and the DCCC (O’Shea 1991, 227). Wright never considered that control frauds have compelling incentives to make contributions to powerful politicians of either party who might intervene on their behalf.
The Best Way to Rob a Bank Is to Own One
William K. Black
The control frauds did not create this optimal environment for fraud. They exploited the criminogenic environment and led the campaign to maintain and even improve it. The control frauds, of course, did not announce that they were entering the industry to loot it, and since the essence of control fraud is the vast inflating of income, they appeared to be the most profitable S&Ls in America. As a result, Pratt never identified and put out of business a control fraud and never identified the wave of control frauds entering the industry. He praised them as entrepreneurs. Pratt disdained traditional S&L CEOs and considered them the problem. The control frauds had dug in for two years before Gray began to fight back.
The Best Way to Rob a Bank Is to Own One
William K. Black
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