Fine Print - June 2010

What was it Deep Throat said?
By G.D. Gearino

The awarding of Pulitzer Prizes tends to be, by design, a low-key affair. When the 2010 prizes were handed out a few weeks ago, the news trickled out in the usual fashion, released to what are still quaintly called the “wire services” as well as being posted on the Web. There was no ceremony, no grand gathering of industry leaders and certainly no acceptance speeches by winners. Too bad, because if there was one group of people who deserved to be recognized for their contribution to journalism, it’s the shareholders of the late, lamented Wachovia Corp. They’re the ironic heroes of the news business these days.

To understand how this came to be, we’ll need to revisit recent history. There are many reasons the Charlotte-based company doesn’t exist any longer, having been one of the more notable casualties of September 2008’s breakdown of the financial system. But the key reason was that two years prior — which is to say, at the housing bubble’s most inflated moment — Wachovia made a costly bet at exactly the wrong time. It spent $24 billion to buy Golden West Financial Corp., a California-based operation that had grown fat on mortgage loans.

Golden West’s specialty was an adjustable-rate product called “Pick-a-Payment,” in which borrowers could select among four payment options — one of which didn’t even cover the interest payment, meaning a home-owner’s debt grew each month. (Gee. How could that go wrong?) When Wachovia acquired Golden West, that portfolio of Pick-a-Payment loans totaled $120 billion and, within two years, burned a hole in Wachovia’s bottom line that could never be filled. CEO Ken Thompson lost his job, and three months later San Francisco-based Wells Fargo & Co. paid $15 billion for Wachovia in an all-items-must-go clearance sale brokered by the federal government.

But what’s a bad deal for one party is often a great one for the other, and that was the case for owners of Golden West, who cashed out near the peak of the boom. First among them was the husband-and-wife team who had turned Golden West from a two-office thrift into one of the largest mortgage-loan originators in the country. The New York Times, for instance, reported that in 2005, Golden West subsidiary World Savings Bank had issued more than a fifth of all “option ARM” loans nationally — those being among the more notorious mortgages peddled during the bad old days.

The owner/couple — Herbert and Marion Sandler — walked away with $2.3 billion in stock and cash, the Times reports. If you were a Wachovia shareholder when the bank imploded, you’ll surely take some sour satisfaction in knowing the Sandlers still had Wachovia stock at that point. So they, too, suffered some pain. But hold onto that thought, because what follows will test your tolerance for bitter irony.

The Sandlers, even before selling their operation to Wachovia, had put their fortune to work in notable — and, to give credit where credit is due, admirable — ways. They made donations to a variety of nonprofit, progressive-minded organizations. Among them was Durham-based Center for Responsible Lending, which counts the Sandlers among its largest supporters since its founding in 2002. The center, which seeks to protect the poor and the elderly from predatory lending practices, can legitimately claim to be on the side of the angels. But pondering the fact that the creators of a mortgage loan that increased a homeowner’s debt with every monthly payment would help fund a group with the phrase “responsible lending” in its name can only make your head spin.

Even more redolent of bemusement was the Sandlers’ funding of ProPublica Inc. Starting operations in January 2008, ProPublica has sought to fill the void in investigative journalism created when newspapers slashed their staffs during the recession. The Sandler Foundation is its primary financier, to the tune of an estimated $10 million annually, and Herbert Sandler is chairman of its board. Among ProPublica’s efforts was an impressive piece about a New Orleans hospital where nearly four dozen patients died during and after Hurricane Katrina. That article, published in collaboration with The New York Times Magazine, won the 2010 Pulitzer for investigative journalism. I’ll say it on behalf of ProPublica, since no one there seems to have gotten around to doing so: Thanks, Wachovia shareholders! We couldn’t have done it without you.

Bear with me, though, because I have yet to mine the richest vein of irony. When I visited ProPublica’s Web site, I found a bar across the top listing the topics upon which the organization has focused its efforts. Among them was one called “bailout guide,” and when I clicked on it, I discovered an exhaustive archive of articles, lists, charts and maps, all of them detailing the federal money invested to shore up the financial industry after 2008’s mortgage-fueled collapse. But when I typed various combinations of the words “Wachovia,” “Golden West,” “World Savings Bank” and “Sandler” in the search box, I got a scant handful of results — only two of which even mentioned problem loans. Those two mentions together contained fewer words than the last paragraph of this column. And that’s all ProPublica has to say about that.