Broken Bank

Washington Mutual, the venerable Seattle-based bank (1889–?),
is on the brink of being gobbled up by J.P. Morgan, Wells Fargo, or
another larger institution. Its credit rating has been downgraded to
“junk.” And at the time of this writing, its stock, though slightly
better than the all-time low of $1.50, is trading at $2.99—a tiny
fraction of its worth in 2007. All of which has those of us at the
bottom of the financial food chain—WaMu customers, members of
tiny local credit unions, and homeowners whose status as homeowners
rests on the zero-interest loans that are now destroying banks like
WaMu and, potentially, the economy—a little worried. Eight
Stranger writers take a look at what WaMu’s meltdown means, the pros and
cons of putting your money under the mattress, and whether it’s finally
time to panic.

Are We Fucked? An Overview

S o, is Washington Mutual fucked? Are we all? That depends on how
abstract you want to be.

When you hand your money over to the bank, most of it gets loaned
out to someone else. Look at your account balance. Shift the decimal
place one to the left. That’s about how much of your money your bank
actually keeps around.

The whole banking system relies upon the assumption that everyone
won’t ask for all their money back at once, and that those loan
investments, made with your money, will be repaid.

In theory, debt ratings guarantee this. Federal regulations only allow banks to invest your
money in the highest-rated debt. Debt is rated in the same way we rate
potential internet dates: The more information you have, the better
sense you have of how the date will go. Similarly, the more banks know
about potential borrowers, the better sense they have of whether the
borrower will be able to repay the loan. If a bank has only a few
scraps of information, it becomes next to impossible to know if it’s
making a good investment.

For this very reason, getting a mortgage loan in the past required a
huge amount of information. Using all of the information, a rating
agency could figure out, with a good degree of accuracy, how likely you
were to pay. The better your odds of paying, the better your
rating.

The problem is that during the housing bubble, the people giving out
mortgages gradually stopped asking for much of this information.
Instead, the rating agencies gave this debt the same good ratings as
always, despite lacking the information to back those high ratings up.
WaMu took our savings and bought a quarter-trillion dollars of “highly
rated” debt that was anything but.

Then the housing bubble popped and some of those “top-rated” loans
were no longer getting paid. Worse, it became impossible to sort out
the good top-rated debt from the bad top-rated debt, because the banks
collected so little information. WaMu—like many other financial
organizations that invested in these “safe” investments—can only
sell these mortgage-backed investments for pennies on what it paid. Our
money, to an unknown extent, is gone.

What’s stopping huge numbers of people from asking for their money
back? We’re insured as depositors, up to $100,000 per account, by the
FDIC.

Ready for the trippy part? The FDIC, ultimately, is secured by the
full faith and credit of the federal government. In turn, the credit of
the U.S. government is secured, well, by you and me. The taxpayers. Joseph Heller could not have written it better. JONATHAN GOLOB

Good-bye to You, WaMu

F rankly, Washington Mutual, I’ve never been that fond of you. It was
a relationship of convenience, nothing more; when Bank of America ate
my old bank, Seafirst, I turned to you merely to feel like I had a
choice. Your performance has ranged from adequate to poor. When I lived
in San Francisco, my Washington account number had one more (or less,
or something) digit than the Californian ones: a pain-in-the-ass and
difficult-to-solve puzzle for you and for me. When you changed the
verbiage on your ATMs to be more “friendly,” you dropped precipitously
in my esteem. Your ad campaigns became progressively moronic (are you
saying “Whoo-hoo!” now, Washington Mutual?). And for the last couple of
years, I’ve dreaded going to you because of that one teller. I’m sure
using my name relentlessly and making unending eye contact is the
product of a directive from you, but it is creepy.

So it was with fairly unmixed feelings that I went to say good-bye
to you. I waited for a long time. Finally I was granted an audience
with you, as represented by a slightly wild-eyed assistant manager. I
told you that I would like to close my account. You asked me why. I
said that I was concerned about the health of the institution. You
asked me why. I said that I’d been keeping abreast of the situation in
the media and that I’d been advised by two people whose financial expertise I respected to close my account. I also said that I was pressed for time. You asked me who
these two people were, which I did not feel was any of your business,
but I answered. You told me that that the media was acting
irresponsibly and reporting things that were “just untrue,” and that
word-of-mouth was causing people to make “emotional decisions.” I said,
“This is not an emotional decision.” I said that I was sorry for your
predicament; I said that surely you could understand that I wanted my
money in the safest possible place. You told me (at length) that my
money was safe. I said that I understood what “FDIC insured” meant, and
that I also understood there might be a gap when my money might be
unavailable. You said that this was not true. I took your business card
from the holder on your desk and began making notes on it.

This went on for a long time. I began to hate you, Washington
Mutual. I said that I would like to close my account and that I was
pressed for time three separate times. I said that I did not want to
continue this conversation. You became increasingly agitated, and you
browbeat me, intimating that I did not understand financial matters and saying
that I was being “rash.” I did not say, “Would you say that to a man?”
But would you, Washington Mutual? You did not say it to a man I know when he closed his account the day before I
did. This man was neither rash nor emotional: He was merely a man who
wanted his money.

When I went across the street to Bank of America, a cashier’s check
at last in my hand, my new banker there said he’d gotten $1.4 million
in new accounts in one day when your stock tanked a few weeks ago. He
said he’d gotten at least three new accounts every day since. He waived
my fees forever.

Good-bye, WaMu. You will not be missed. BETHANY JEAN CLEMENT

Stand by Your Bank

T he first bank account I ever had was at Washington Mutual.

My mom took me in, cosigned because I was of untrustworthy age, and
introduced me to this concept of giving other people your extra money
to keep it safe for later. Off I went, handing over bits of my
allowance, birthday cash from relatives, checks from my high-school
jobs.

I know now that this business of storing money probably shouldn’t be
about mushy sentiment. But it’s hard for me not to be sentimental about
Washington Mutual. The place treated me like an adult when I was a kid.
It respected me—even when all I had to offer were inconsequential
sums and a financial legitimacy that only existed because of my mom’s
guarantee.

Washington Mutual was, naturally, the place I went when I got a bit
older and began to think there was something a little pathetic about
needing my mom to vouch for me with the serious people of the world. In
March of 1994, I opened my own WaMu checking account.

The reason I know the exact month and year is that last week, as
talk of a WaMu collapse was ricocheting around the web, I walked into a
local branch and asked. The teller looked a bit glum, as if my request
was yet another prelude to yet another breakup.

She told me. I thanked her. And then I left.

I was just curious.

She seemed relieved.

My WaMu checking account has followed me around my entire adult
life. That’s sentiment speaking again, the idea that a bank account has
agency, that it is something more than a money box. But that’s how this
account is for me. It went with me to college in New York, my WaMu
debit card a little talisman from home, somehow worth the charges I
began to incur for having to use the ATMs of other banks around
Manhattan.

By the time I graduated, though, there were so many WaMu branches in
Manhattan that I might as well have been at home. WaMu was growing up
with me.

I came back to Seattle. I visited, quite often, the branch where I
opened my checking account—the account I still use to this day. I
dated a guy who turned out to be a WaMu teller. One day he was robbed,
and the terror I felt helped me realize how much I liked him. I
remember learning that WaMu gives bonuses to tellers who put an
explosive dye-pack in with a robber’s cash, and that the bank offers
them free counseling, too. I thought that was nice.

I should probably close my WaMu account now. As a friend with good
money-sense put it: “Any bank that makes me nervous is a bank I don’t
want to be involved with.” Plus, in a way, I feel like WaMu robbed me.
It used the money of my growing up to help with a growth scheme so dumb
it’s now destroying the entire institution—not to mention
dragging down the whole American economy.

I was probably wrong to get sentimental about it in the first place,
though. A bank is a bank. It’s about the storage of money, not emotion.
Still, fond feelings die hard. I can’t get myself to withdraw just yet.
ELI SANDERS

Meet the New Bosses

I n a few days, Washington Mutual will be bought by J.P. Morgan or
some other larger financial institution, Morgan Stanley will merge with
Wachovia, and Lloyds TSB will purchase its direct rival HBOS. Earlier
this week, Bank of America bought Merrill Lynch, and Barclays Bank
bought the fresh remains of Lehman Brothers. These are not small
institutions being absorbed by large institutions—these are
gigantic financial institutions being absorbed by even more gigantic
institutions. In ordinary times, this state of affairs would have
alarmed the public and the press: It’s an unprecedented monopolization
of the banking industry. In extraordinary times, however, these
galactic mergers are greeted as good news—investors are happy,
the stock market stabilizes, Americans can return to worrying about the
implication of applying lipstick to a variety of farm and domesticated
animals.

What good can come out of the largest savings-and-loan association
in America, Washington Mutual, being gobbled up the second largest
banking institution, J.P. Morgan—a corporation that just four
years ago merged with another massive financial institution, Bank One
Corp.? Washington Mutual is the only large bank in Seattle that
survived a flurry of mergers in the 1980s. After it’s gone, there is
nothing left here. The main banks in Seattle, a very rich city, will
have their headquarters in New York and San Francisco. This enormous
concentration of wealth will have a serious impact on all areas of
life, particularly our political constitution. Democracy cannot
flourish in an economic environment that’s conditioned on the decisions
made by a handful of banks with assets in the trillions. How can the
public challenge the determinations of such power? But deregulation has
no other result than this kind of monopolization for the few and
political and economic dispossession of the many.

Since the 1980s, the neoliberalization (deregulation,
deunionization, privatization) of country after country—Mexico,
Brazil, Russia—has repeatedly resulted in, on one hand, the
decimation of the middle class and, on the other hand, a spectacular
explosion in the number of billionaires (According to Forbes magazine,
Moscow is now the “billionaire capital of the world, its 74
billionaires overtaking New York City.”) Neoliberalism, the dominant
economic ideology and program over the past 30 years, imagines paradise
to be a market that has a deunionized workforce, minimal government
control, and the privatization of all goods and services. The
neoliberal agenda has impacted cities, farming, education, water, and,
of course, the mortgage and finance industry, the
consequence of which has been the raw transference of billions upon
billions of dollars to conglomerates with trillions. It’s hard to see
how the democratic institutions of the U.S. and other countries will be
meaningful in the world that is coming our way, a world controlled by a
handful of corporations. CHARLES MUDEDE

Poverty Is the Best Defense

F orgive me, Mom, if you’re reading this, but I can’t help but gloat
a little when I see my coworkers and friends flipping out over the
current financial meltdown. As friends pull money out of Washington
Mutual, I toss my bank statements into the recycling unopened. As
coworkers fret that even their “safe” investments may lose them money,
I hand my debit card to the QFC cashier, confident that whatever
happens with the collapsing economy, I, at least, have nothing to
lose.

I am, like many Americans, a debtor. My credit report would give any
sane accountant an aneurysm, I have not a lick of savings, and I live
from paycheck to paycheck. Toward the end of every two-week pay cycle,
you’ll find me eating canned soup and scrounging under the couch for
bus fare. It isn’t a glamorous lifestyle, but it does have one silver
lining: I am largely immune to the economic ups and downs that so panic
my debt-free counterparts.

Being poor is obviously no bulwark against economic collapse. I’m
impacted, like everyone, by the rising price of food ($5.99 for a bag
of rice?) and gas (in-city bus fares are about to top $2). And I have
no cushion to fall back on—no trust fund, no investments, no cash
under the mattress.

But I don’t have to worry if my money is safe: I don’t have any. My
paychecks get deposited directly into a checking account (not,
incidentally, with Washington Mutual) and spent almost immediately on
bills and necessities. As for that credit-card debt: Because banks are
so eager to rid their books of debt, I’ve received three offers in the
last week to settle what I owe—at substantially reduced rates, or
what the card companies call “unprecedented savings!” So while everyone
else is freaking out about liquidity and deposit insurance and interest
rates, I’m confident that I may be poor, but I’m at no risk for losing
it all. ERICA C. BARNETT

Is Smaller Safer?

M y money is safe because it’s in a credit union, right? That’s what
everyone says. But my Jewish roots have betrayed me: I don’t know shit
about money. So I called someone who does.

“Credit unions are not immune to the national problems that are out
there,” says Linda Jekel, director of credit unions for the Washington
State Department of Financial Institutions, which regulates financial
services. Credit unions are member-owned cooperatives that have
historically been stabilized by conservative investments—but they
are, nonetheless, small players bobbing in the economic tsunami.

Beginning around 2004, banking giants started loaning huge sums to
homeowners and developers without verifying borrowers’ credit. Those
loans paid for much of the last decade’s housing boom. At the same
time, the banks were funding a parallel boom of commercial developments
such as apartment buildings, hotels, and shopping malls. But now many
of those borrowers can’t pay the bills. Result: The banks are
screwed.

Credit unions, on the other hand, historically required partial
payment before granting mortgages, required borrowers to prove their
incomes, and focused on safer personal loans for homes and credit
cards, Jekel says. “That’s why they are doing okay at this point.”

But the economy may yet catch up to credit unions. As banks and
businesses implode, merge, and liquefy, they will lay off employees.
Some of those newly unemployed people are indebted to credit unions. As
prices for gas, food, and other living expenses continue to rise, those
debtors may have trouble paying the bills. “That’s all going to have a
ripple effect,” Jekel says—which could leave credit unions
without enough assets to guarantee their members’ deposits.

Does this mean I may not be able to get cash from the ATM next week?
Should I should run downtown now to convert my money into gold?

“The worst thing that could happen,” Jekel says, “is that members
lose confidence and make a run on deposits.” She says that before
attempting cash alchemy, people should check their bank’s rating at a
website, such as www.bauerfinancial.com, which
assigns financial institutions between one and five stars. Washington
Mutual holds a dismal two stars: “problematic.” Sounds generous. But my
credit union, Prevail, earns a four-star rating, meaning it is
“excellent.” My $80 is secure! But I have a new bookmark on my web
browser, and you probably should, too. DOMINIC HOLDEN

Sorry I Killed Your Bank!

W e have one of those terrible, horrible, no good, very bad mortgages
that destroyed the economy when no one was looking. It’s an
ARM—that’s “adjustable rate mortgage”—and it allowed my gay
boyfriend and me to buy a house we might not otherwise have been able
to afford. My mortgage doesn’t begin to “float,” or become adjustable,
for five more years, so… um… here’s hoping this financial
crisis—excuse me, “market correction”—has passed by March
of 2013!

Here’s one hilarious thing about our mortgage: It’s interest only,
which means we don’t have to pay off any of the principal of the loan,
just the interest on the loan. We do pay off a big part of the
principal every year, of course, because we’re not total idiots. But
technically speaking, we could make minimum monthly mortgage payments
for ever and ever and ever and never actually own the house.

Our mortgage can never get older and it can never
die—creepy!

The other hilarious thing about our mortgage? It’s with Washington
Mutual. Gee, maybe I owe WaMu an apology, seeing as I have one of those
risky mortgage doodads that sank the bank.

I’ve got nothing but nice things to say about Washington
Mutual—or I had nothing but nice things to say until very
recently. For me, Washington Mutual wasn’t really a bank. It was
Michelle. She was our mortgage broker and she was a lovely, indulgent,
patient woman. Michelle worked on the second floor of a Washington
Mutual branch at Fifth Avenue and Union Street, right across the street
from a bakery. Whenever I had a question about my mortgage or wanted to
drop off a check to pay down the principal or if I just needed a
document for tax purposes that the bank damn well mailed me months ago
but I, of course, lost, I could just pop into Michelle’s office and she
would take care of it.

Michelle was one of the only people in Seattle who I actually
allowed to hug me.

The last time I dropped by Michelle’s office—about two months
ago—she was packing up. Not only would Michelle no longer be at
that Washington Mutual Home Loan Center for me to drop in on, but there
would no longer be a Washington Mutual Home Loan Center for me to drop
in to. Her entire department had been laid off. Pfft.

I realize I had it good at Washington Mutual—it was like
Mayberry, where you actually know your banker and can just pop in on
’em when you feel like it. But Michelle is the only mortgage broker
I’ve ever had—and now I don’t know where to go or what to do when
I have a question about my mortgage. Having a mortgage is a big and
scary grown-up responsibility, and Michelle was my security blanket.
Washington Mutual’s bad business practices have deprived me of her, and
now I don’t know what I’m going to do.

Oh, wait: I do. Michelle moved to Wells Fargo. I think I’m going
with her. DAN SAVAGE

Panic Is Pointless

I refuse to panic. Largely, I refuse to panic because it will not
help me. I do not have $100,000 or anything like it. And there is
something undignified in believing that if I gather my piddling money
into my arms and march it across the street it will be safer.

Let’s say we all take our money out of Washington Mutual now, and
put it into other banks. Unless we all head for halo-wearing local
credit unions, most of that money is liable to land at nearby branch
locations for big banks: Bank of America, Wells Fargo, big names that
sound safe.

But this would give greater power to fewer banks. Isn’t that why
we’re in this housing-loan crisis in the first place?

I also refuse to panic because I want to believe in banks. I realize
this is corny and outdated, and, yes, that the days of the It’s a
Wonderful Life savings and loans are over. WaMu is a thrift, sort of a
savings-and-loan hybrid, and it expanded its business in part by taking
advantage of the real-estate market in particularly aggressive ways.
“At best, they made bad decisions,” a reporter who has been covering
banks for 23 years told me Wednesday. (He asked to remain anonymous
because his employer prefers he report the news rather than be in it,
but his expertise was invaluable to me as a consumer.) “At worst, they
were doing sinister stuff.”

Is it even possible to make moral distinctions between banks the way
Jimmy Stewart did? My reporter source said yes, it is. He added, “WaMu
is not a good guy.” Wells Fargo, by contrast, he says, made fewer
“exotic” loans and was smart enough to sell the ones it had before the
going got too bad.

So my bank is either more evil or more incompetent than average. It
got a new chief executive this month. Maybe that signals change; but if
it is sold, the new CEO may not matter. For now, I’m watching and
waiting. And if I do break up with my bank, it won’t be out of fear,
but because my bank is simply not good enough. JEN GRAVES

Edited by Erica C. Barnett