Having chronicled the decline and fall of Washington Mutual,
I have been reading recent books about the great financial meltdown to see what
perspective outsiders bring to the sad saga.
Using the favored technique of
reading books in the other Washington—start with the index and count the number
of mentions of the subject you’re interested in—I find that WaMu barely
registers as a footnote to history.
Former Treasury Secretary Henry
Paulson, in his tome On the Brink, takes
time out from ceaseless discussions of Bear Stearns, Lehman Brothers, AIG,
Merrill Lynch, Goldman Sachs and Fannie and Freddie and the other members of
the club to concede that just maybe perhaps the WaMu debacle could have been
handled a teensy bit better.
“Unfortunately, the WaMu solution
wasn’t perfect, although it was handled smoothly using the normal FDIC
process,” Paulson writes. “JPMorgan’s purchase cost taxpayers nothing and no
depositors lost money. But the deal gave senior WaMu debt holders about 55
cents on the dollar, roughly equal to what the securities had been trading for.
“In retrospect, I see that, in the
middle of a panic, this was a mistake. WaMu, the sixth-biggest bank in the
country, was systemically important. Crushing the owners of preferred and
subordinated debt and clipping senior debt holders only unsettled the debt
holders in other institutions, adding to the market’s insecurity about
government action. Banks were even less willing to lend to one another. In the
future, I concluded, we were going to need to go beyond the standard FDIC
resolution process for a failing bank.”
In other words: Oops. Hope you
former WaMoolians feel better about that.
The point of this exercise is not
to rehash what was or should have been done with or to WaMu, but to confirm a
lingering suspicion that, when it comes to finance, the West Coast just doesn’t
matter much.
Or, to contradict Paulson, the
West Coast’s financial institutions aren’t “systemically important.”
The West hasn’t had major national
banking players, aside from Wells Fargo, for years. Security Pacific and First
Interstate disappeared in mergers, Bank of America’s headquarters moved east,
and the big West Coast thrifts were bought or failed.
This matters because, aside from
having big banks that generate jobs and economic activity (WaMu had the
potential to be a big deal in consumer banking), they also are more inclined to
lend in a market they know, at a size that makes a difference.
The West Coast doesn’t fare much
better with Wall Street, a potential financing source for the more speculative
companies that have been at the center of West Coast economic vitality.
G. Steven Burrill, chief executive
of a San Francisco-based investment banking firm serving the biotech industry,
recently told the Life Science Innovation Northwest Conference in Seattle that
the sector has “essentially been marginalized by the investment community… The
investment community by and large really doesn’t understand what we’re doing.”
But Burrill also said there “still
is plenty of capital in the world for things we want to do,” even if it’s more
expensive and inefficient to get than before.
So where is it coming from, if not
from commercial banking or Wall Street?
As it turns out, the West Coast
has developed something of a parallel banking system—venture capital,
private-equity pools, angel investors, all examples of the region working its
way around the restrictions and barriers to the funding needed to produce new
technologies and companies.
If one were to look for a
promising area for innovation in the coming decade, finance might be it. That
means true innovation in the means and vehicles for gathering and investing
money, not simply devising the ever more complex and riskier financial
instruments that contributed to the Wall Street/banking calamity.
That may not have the sex appeal
of the next consumer-electronics gizmo, the next laboratory-engineered drug or
the next social media site. It might, though, be far more important. For the
sake of the West Coast’s economic future, far better to be writing our own book
than to merit no more than a parenthetical mention in someone else’s.