Oh, So Now, Wachovia's Board Does Its Fiduciary Duty

Wachovia's decision to leap from Citi's government-induced bear hug to Wells Fargo's open-armed, gently caressing one is the latest sadly amusing chapter of the past month. Of course, it's the duty of Wachovia's board to seek the best value for its shareholders, and Wells Fargo's deal is seven times as lucrative. But why for the past three-plus years, most especially when buying Golden West, the godfather of the option ARM, for $25 billion, could no one on Wachovia's board or in its executive suites recognize what they were doing was driving the company into the ground?

Perhaps even farther up the "sadly amusing" ladder are Herb and Marion Sandler, owners of Golden West when they sold it to Wachovia. Fierce Democratic donors, their lending practices are a (sub)prime example of why the country's economy is swooning -- just because expanding home ownership is a just cause doesn't mean everyone in the world should qualify for a mortgage, which, hopefully, they've now learned. (Thanks to Seeking Alpha for being more prescient than nearly all.) With all their wealth, the Sandlers have used part to found ProPublica, a nonprofit organization of investigative journalism that thankfully fills the gap when the newspaper industry does nothing but implode. Maybe their first assignment can be exposing themselves?

Oh, and for those looking for more heaps of morbid amusement, join the FDIC's press release list. Every time you open your Inbox: "Whose gone under now?"

Update (12/26/08): The Times beat ProPublica to the punch, publishing an excellent, unflattering article on the Sandlers' and Golden West's business model. The company popularized loans with "pick what you pay" monthly installments, meaning it was very possible, if not likely, that a borrower paid less than the interest rate so the mortgage's size actually grows with time. Mr. Sandler defends the lending vehicle as an excellent one, except when housing prices decline by 40 percent, as they have in many places in California, where the company had its largest market, which shifts poor decision-making to nebulous, overriding market forces. No one is culpable, everything is a vast mix of factors beyond our control. The 21st century in a nutshell. Doesn't lending to unqualified people in enormous quantities through such vehicles such as option ARMs also (in)directly inflate the housing bubble? In Mr. Sandler's defense, Michael Moss and Geraldine Fabrikant, the story's authors, don't let him do much more defending, perhaps because there isn't much left or because they've written a slightly slanted (but still-deserved) story. Furthermore, borrowers need to understand the terms on which they're borrowing. A contract is a contract is a contract. They need their own story in "The Reckoning" series.