The report detailed a $1.1 billion Deutsche Bank CDO known as Gemstone VII, which was backed with subprime loans that its then-top trader, Greg Lippmann, referred to as "crap." The head of the bank's CDO group, Michael Lamont, said in an e-mail cited in the report that he would try to sell the CDO "before the market falls off a cliff."
On lending, the panel alleges that executives at failed thrift Washington Mutual Inc. dumped its bad loans on clients while misleading them about their value.
"WaMu selected delinquency-prone loans for sale in order to move risk from the banks' books to the investors in WaMu securities," Levin said.
Compounding that problem, the subcommittee found, was an apparently cozy relationship between WaMu and its regulator, the Office of Thrift Supervision.
The report cited a July 2008 e-mail from then-OTS director John Reich to WaMu CEO Kerry Killinger, in which Reich said the regulator would issue a memorandum of understanding regarding the bank's problems.
"If someone were looking over our shoulders, they would probably be surprised we don't already have one in place," Reich wrote, apologizing twice for communicating the decision in an e-mail.
Under the Dodd-Frank regulatory overhaul, the OTS will be folded into other regulators in July.
"The head of OTS knew his agency had been providing preferential treatment to the bank," Levin said. "The OTS was abolished by Dodd-Frank, and for good reasons.".