On this day in 2008, the LA Times reported Washington Mutual (WaMu) was placing longer-than-normal holds on IndyMac checks citing fraud concerns, making a bad situation for IndyMac customers worse.
Five days prior, IndyMac had been taken over by the Federal Deposit Insurance Corporation (FDIC) which had shutdown operations before the bank's regular closing time. The media seized upon images of terrified customers lining up outside locked branch doors. Thousands of IndyMac customers ended up losing millions in uninsured deposits. At $7 billion, the IndyMac failure was the largest loss ever for the agency.
But both banks had large exposures to high-risk mortgages on the West Coast, and WaMu itself was hemorrhaging deposits and on the brink of collapse. The FDIC was ultimately saved from WaMu's failure--the largest in US history--because Jamie Dimon and JP Morgan agreed to acquire all of its assets and liabilities in September 2008, absorbing losses that would normally have fallen to the FDIC.
In December of that year, the New York Times reported on the loan approval process at WaMu.
"As a supervisor at a Washington Mutual..John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu...was all about saying yes.
Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.
Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved."