Wamu's_Failure

WaMu Bank Failure Shamita Robins LDR 531 May 12, 2010 JoAnn Spurlock WaMu Bank Failure In September 2008 Washington Mutual Incorporation (WaMu) experienced failure because of the lack of risk management, inflation of home values to justify larger loans, and used dangerous underwriting standards (Carter, 2009). WaMu was seized by the Federal Deposit Insurance Corporation. WaMu lost approximately $17 billion in deposits in nine days. The cause for this failure was because of poor leadership and lack of ineffective management teams. Leadership according to (Yakl, 2006) is leading or directing the behavior of an individual or group of individuals toward a specific goal or outcome. Leadership is the ability to promote others to establish an effective role in the success of an organization. WaMu evidently did not have effective leaders within the company teams. The company lacked guidance, structure, and organization. Many of the company’s leaders were not overseers of the company. The leaders did not adhere to the company policies. WaMu executive employees were being greedy, and as a result WaMu incorporation is filing bankruptcy for their corrupt actions. The company has many upper level employees being investigated for risky mortgage loans and fraudulent security deposits. Although there are many upper level executives; the lower level managers are the first on the list for investigators. “You start with the little fish and work your way up,” according to Lis Wiehl, a Seattle prosecutor. The leaders of the WaMu Company will be prosecuted; the managers and the lower level employees will also face incrimination if convicted of any wrongdoing. A manager role is to instruct or dictate to subordinates. Managers instruct to others what needs to be done. The management team at WaMu did not have effective managers in place to instruct and manage the duties of others. WaMu’s management team did not make good business decisions. The company failed at making risky decisions on mortgage loans and inflation of home values to justify larger loans. If the management team was instructing, leading, and planning the company would have had a better chance of being successful. The officials stated that WaMu bank is one of the largest bank failures that have occurred in the United States. According to (Adler, 2010) the blame is on the United States Office of Thrift. OTS is an agency that examines a corporation when risky behaviors are suspected and if fraud is suspected within a major company. It states if OTS would have penalized or pointed out that WaMu was suspected of unacceptable actions the company may not have failed and may not be in the situation that they are in today. OTS was more suspicious about bringing about a war between the FDIC, which is the Federal Deposit Insurance Corporation then correcting WaMu’s risky strategies. Organizational theories could have predicted a better outcome of the company’s failure if these theories were in place and used effectively. Self management could have been used to prevent the risky decisions made at WaMu. Self management is a process that involves personal objectives and priorities that manages individual’s time effectively. If officials took a close look at their own behaviors and the consequences associated with their actions the outcome would have been beneficial. Another theory that could have been implemented is the prescriptive theory. The prescriptive theory is a theory useful when a difference exists between what a leader do versus what a leader should do to be an effective leader. Many leaders or managers make decisions on instinct or make hasty decisions without thinking about the consequences that will follow. The leaders or managers at WaMu Incorporation made risky decisions and they did not implement the prescriptive theory on what a leader does versus rather what the leaders should have done. Although, there are many theories that could have been implemented, into WaMu’s corporation that could have prevented the company from failure. WaMu’s failure was stated to be one of the world’s largest bank failures in the United States. The failure occurred because the bank officials made risky mortgage loans, and committed a great deal of underwriting strategies. The corporation was seized by the FDIC and bought by JPMorgan Chase for pennies explained by a reporter in the Tribune Business News. WaMu was sold for $1.9 billion according to (Carter, 2009). Consumers lost profits and deposits due to the actions and behaviors of the officials at WaMu. Washington Mutual is currently under investigation to determine if criminal charges will be filed against the officials that committed the risky behaviors and dangerous underwriting. Washington Mutual has filed bankruptcy because the company put itself in tons of debt. The leadership teams should have been productive and effective, and loyal to their consumers instead of thinking about profits and deposits. The cause of this failure was caused by poor leadership and the lack of ineffective management teams. Fortunately, many lessons were learned from the tactics and strategies of Washington Mutual Corporation. References Adler, J. (2010). WaMu Policing Slammed . American Banker, 175(F314), 1-3. Retrieved from http://ehis.ebscohost.com Carter, M. (2009). Top feds scouring WaMu files for evidence fraud. McClatchy- Tribune Business News, (), 3. Retrieved from http://proquest.umi.com Yukl, G. (2006). Leadership in Organization (6th ed.). Upper Saddle River, New Jersey: Pearson Education