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Timing is everything — in life, and, it seems, in bankruptcies.

Consider the failure of Washington Mutual Bank, seized by federal regulators in the fall of 2008 and quickly sold in a fire sale to JPMorgan Chase & Co. It was the biggest bank failure in American history. And yet, coming days after the collapse of Lehman Brothers and the bailout of A.I.G., and with the public otherwise distracted by more terrifying signs of a looming financial apocalypse, the bank collapse barely registered.

It’s only fitting, then, that the WaMu bankruptcy examiner’s report, released on the eve of the midterm U.S. elections, would similarly land with barely a splash.

At first glance, there is reason to quickly move past the report, which examines a settlement among JPMorgan, the Federal Deposit Insurance Corp. and WaMu that divides more than $7 billion in disputed assets, including bank deposits, to creditors, but wipes out shareholders. There are no Lehman-like allegations of accounting chicanery and there is little obvious ammunition for investor or government lawsuits. The examiner, Joshua Hochberg, concludes there was no fraud in the sale of the bank to JPMorgan, and said that there are “no known facts to establish the government acted in bad faith.”

And yet, the report contributes to the growing canon of documents that explain the great crash of 2008 and its repercussions, as Hochberg described the close involvement of federal regulators in finding a sale partner for the struggling WaMu. Hochberg also criticized the Federal Deposit Insurance Corp. for its lack of transparency in cooperating with his investigation. The agency was “slow and difficult” in negotiations, he wrote.

WaMu sale discussed in March 2008

According to the examiner, the seeds of the WaMu sale were planted in March 2008, when JP Morgan first told government regulators that it was considering buying the bank, which was already faltering under the weight of bad mortgage loans.

Those talks broke down, but the pressure on WaMu increased.

In July 2008, officials from the Office of Thrift Supervision, WaMu’s primary regulator, and the FDIC told the board of directors that WaMu’s prospects were dim. Loan losses on junk mortgages would exceed estimates, the regulators said, and the bank’s liquidity was “stressed.”

That assessment didn’t include a run on the bank that followed the failure of another institution, IndyMac Bank. That month, spooked investors withdrew nearly $10 billion from WaMu.

There was also disagreement over that summer about what role regulators should play in either propping up or helping dissolve the bank.

Kerry Killenger, WaMu’s chief executive, pushed then-Treasury Secretary Henry Paulson to place the bank on the “do not short” list. Paulson refused, and told Killenger that he should have merged with JPMorgan in March, when it had the opportunity to do so. FDIC chairman Sheila Bair later expressed surprise to Killenger that Paulson would say this.

Despite the warning signs, the regulators then met and expressed satisfaction with WaMu’s financial condition, the examiner said.

FDIC urges WaMu to find buyer in September

In early September, the WaMu board of directors replaced Killenger with Alan Fishman. A few days later, Fishman met with FDIC’s Bair, who gave him some chilling news. Bair said that there was an unresolved issue between her agency and the Office of Thrift Supervision over a key rating regulators use to judge the soundness of banks.

The FDIC wanted to lower the rating, which would put WaMu on the agency’s public list of “troubled banks.” Although WaMu would not be identified by name, it’s assets would be described in such a way that market traders would be able to discern the identity of the bank. To avoid this listing, WaMu should find a buyer, Bair said, according to the report.

On Sept. 14, Lehman declared bankruptcy. WaMu then experienced another run on the bank, this time losing more than $16 billion in a matter of days and overwhelming management’s efforts to mitigate the losses.

FDIC phones JPMorgan CEO

A few days after Lehman fell, Bair called Jamie Dimon, JPMorgan’s chief executive, to ask if he was interested in buying WaMu out of receivership. She also urged him to seek an open-market acquisition of the bank. On Sept. 19, JPMorgan told regulators that it wasn’t interested in acquiring WaMu, because the debt of the holding company was too great.

A handful of banks, including Citigroup, Wells Fargo, and Banco Santader in Brazil had expressed interest in acquiring the bank, but now they also balked.

By Sept. 23, WaMu had just $4.6 billion in cash to meet its liquidity operations. The Office of Thrift Supervision contacted several potential banks to gauge their interest in buying WaMu out of bankruptcy. JPMorgan, according to the examiner, was the only serious bidder.

That Friday the OTS shut down WaMu and placed it into receivership with the FDIC. The institution, which earlier in the summer held more than $300 billion in assets, was sold for just $1.88 billion.

FDIC bidding process “less than optimal”

Though Hochberg ultimately concludes that the sale was fair, he came down hard on the FDIC for failing to adequately cooperate with his investigation, and questions some of the agency’s actions along the way.

The FDIC’s bidding process, he said, was “less than optimal” and “could have been better.” He notes that the Sept. 16 call from FDIC’s Bair to JPMorgan’s Dimon came “before any formal opening of the bidding process.”

Hochberg also says that “some of the FDIC’s actions lack transparency.” As a result, he was “unable to determine whether the FDIC fully understood the value of the assets it seized and sold.”

In general, Hochberg was frustrated with the agency’s balking.

“The FDIC made clear that attempts to compel discovery could be met with certain obstacles . . . which could effectively delay and discovery beyond the tine limits of the examination,” Hochberg wrote. The FDIC had said it would litigate to keep internal deliberations secret, he said.

The agency also responded selectively to document requests, and refused to make Bair and two other senior officials available for interviews. The FDIC’s lack of cooperation was especially egregious compared with other players in the WaMu sale, he said. The OTS, for example, “was helpful and cooperative,” he wrote. (Hochberg didn’t return a call left on Tuesday).

FDIC says it cooperated

In a lengthy statement sent in response to a Center query, FDIC spokesman Andrew Gray said that the agency cooperated, not just with the examiner’s investigation, but also with investigations into WaMu’s failure by Congress and the agency’s own inspector general.

“It is unprecedented for the FDIC to let its process be subject to review by a bankruptcy examiner,” he wrote. “However, the FDIC voluntarily cooperated in an effort to move the settlement agreement forward, including the production of numerous documents and interviews with key FDIC senior staff. The FDIC General Counsel determined that interviewing other officials, including the Chairman, was not necessary to adequately respond to the needs of the special examiner and would set a dangerous precedent.”

Ultimately, Gray said, it is important to point to the broader conclusion of the report. “The settlement is fair, the process was correct and there was no undue influence on any party.”

Lack of transparency by the FDIC, while a concern, did not affect his final conclusions, Hochberg said.

Hochberg’s report, though valuable, doesn’t address the decision-making that led to Washington Mutual’s precarious position as of the spring of 2008. For that, it is instructive to turn to an earlier report co-authored by the inspector generals of the FDIC and the Treasury Department, which concludes that the bank failed because of management’s pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls along with, in many instances, fraud in mortgage originations.

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