What was it deep throat said?

• Author: Gearino, G.D.
• Position: FINEPRINT

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.

[ILLUSTRATION OMITTED]

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 homeowner'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...