A Financial Scandal for 2010? - TheStreet

A Financial Scandal for 2010?

The coming year could finally shed some much-needed light on what exactly happened when Washington Mutual was delivered to JPMorgan, says senior writer Dan Freed.
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NEW YORK (

TheStreet

) --

Washington Mutual

just isn't going away.

We have seen during this crisis that some stories take a considerable amount of time to bubble to the surface. So much happened so quickly in the weeks following

Lehman Brothers's

bankruptcy filing. Despite all the Congressional hearings and leaked investigations by New York State Attorney General Andrew Cuomo, we still don't understand who decided to keep

Bank of America

(MS) - Get Report

shareholders in the dark about mushrooming losses at

Merrill Lynch

just ahead of the deal's closing at the start of 2009.

It wasn't until three months ago that we learned from

New York Times

writer Andrew Sorkin's reporting for his book

Too Big To Fail

that government officials were pushing

Goldman Sachs

(GS) - Get Report

and

Wachovia

to merge and for

Morgan Stanley

(MS) - Get Report

to get together with

JPMorgan Chase

(JPM) - Get Report

, over the protests of both banks' top executives.

Compared to those stories, JPMorgan's purchase of Washington Mutual after its seizure by government regulators seems like small potatoes. WaMu is commonly viewed as the largest bank failure in American history, but it seems like splitting hairs to call WaMu a failure and Wachovia not. Goldman, Morgan Stanley, Lehman,

Merrill Lynch

,

AIG

(AIG) - Get Report

and

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

all ranked considerably higher in the Fortune 500 in 2008, and people have been more focused on what happened to those institutions, the majority of which were deemed too big to fail, but whose regulatory status was more complicated than

Citigroup

(C) - Get Report

?

The case of WaMu is still drawing considerable attention from aggrieved shareholders, and more than a year after the bankruptcy, WaMu stories continue to attract significant attention from

TheStreet's

readers.

John Hempton, CIO of

Bronte Capital

, who admits that because he lost money on WaMu his comments can be taken "with the caveat of a slightly angry grain of salt," has called the WaMu seizure "the most capricious government action of this cycle and possibly the worst thing that has happened to American Capitalism this cycle."

Though much of the anger, including Hempton's, has been directed at

Federal Deposit Insurance Corp.

Chairperson Sheila Bair, Chris Whalen, managing director of Institutional Risk Analytics, says the Office of Thrift Supervision, which was ultimately under the authority of then Treasury Secretary Hank Paulson, made the decision to close WaMu. He says he believes regulators "acted preemptively" to address the most troubled large bank loan portfolios in 2008.

"You can probably make an argument that

WaMu still looked solvent as of the last statement date," Whalen says. He notes, however, that WaMu never filed a call report for the period that included its bankruptcy, so much about its financial condition remains a mystery.

"My supposition was always, 'Well, they didn't want us to see it,'" he says.

The Puget Sound Business Journal

made a request for documents that give details on communications between WaMu's regulators related to its seizure under the Freedom of Information Act, but received "several hundred pages of government emails about WaMu, written during its final months, in which almost all of information is blacked out,"

according to a report earlier this month.

All the redacted information just makes you wonder what the emails contain. What, exactly, is so top secret, a year after WaMu's failure? Presumably the redactions are an effort by the government to defend itself in litigation surrounding the case.

Attorneys for Washington Mutual have asked a judge for permission to conduct a broad investigation, which would include interviews with all the major regulators and executives involved in helping determine WaMu's fate. Let's hope the investigation goes ahead, or that a larger news organization than the

Puget Sound Business Journal

will devote some resources to explaining what happened with WaMu. If not, it could be a long wait before we get some answers.

--

Written by Dan Freed in New York

.

Read More:

A WaMu primer.