Never stop the production line!
Yesterday, evidence came out that Washington Mutual knew about fraud in its residential mortgage originations. No surprise. There was lots of fraud in the heyday of the residential mortgage boom.
What was surprising was that WaMu allowed these loans to be sold to investors and packaged into residential mortgage backed securities.
Since Senator Levin is from Michigan it reminded me of a similar story from a GM plant. They never stopped line in the GM plant. Even if someone had put a Regal front end on the a Monte Carlo, nobody would push the button to stop the production line and fix the problem.
The GM plant managers were paid to get cars off the end of the production line, regardless of what condition they were in or even if they were driveable.
The Washington Mutual loan officers were paid to get loans to the end of the production line, regardless of whether there was fraud or if the loan could be repaid by the borrower.
Both WaMu and GM ended up insolvent. The workers and the managers were paid on quantity, not quality.
- Press Alert – Senate Subcommittee Launches Series of Hearings on Wall Street and the Financial Crisis.
- WaMu Screwed Wall Street Over and Over Again by Zachery Kouwe in DealBreaker
- Memos Show Risky Lending at WaMu by Sewell Chan in the New York Times
- Incentives, Productivity and NUMMI – prior post