Washington Mutual

Washington Mutual's September 2008 failure remains the largest bank collapse in U.S. history—$307 billion in assets wiped out in a bank run that saw $16.7 billion withdrawn in 10 days. WaMu's story illustrates how aggressive growth strategies can create organisms too large to adapt and too fragile to survive stress. The company grew from a regional savings and loan to the nation's largest thrift through aggressive mortgage lending, including subprime and option ARM products that let borrowers pay less than the interest due. This wasn't banking—it was farming future defaults, creating a loan portfolio that would explode when housing prices stopped rising. WaMu's mechanism failure was ignoring the phase transition in housing markets. The company's entire model depended on continuously rising home prices—borrowers could refinance before their adjustable rates reset, defaults would remain low, and the music would keep playing. When housing prices plateaued in 2006 and declined in 2007, every assumption failed simultaneously. This is catastrophic phase transition: the company had optimized for conditions that no longer existed. The final collapse demonstrated classic bank run dynamics. Depositors withdrew $16.7 billion in nine days following Lehman's bankruptcy, forcing the FDIC to seize WaMu and sell it to JPMorgan Chase for $1.9 billion—a 99% discount to peak value. The speed of collapse showed how positive feedback in depositor confidence can destroy any bank, regardless of size.