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The New York Times took a look at the problems that led to the collapse of Washington Mutual: Fraudulent mortgage applications were approved with nothing in the way of oversight from the boss -- who was snorting methamphetamine every morning. Meanwhile, the CEO took home $88 million between 2001 and 2007 before the company collapsed under the weight of the billions of dollars in bad loans it had made.

According to the Times, "By 2005, the word was out that WaMu would accept applications with a mere statement of the borrower's income and assets -- often with no documentation required -- so long as credit scores were adequate, according to Ms. Zaback and other underwriters."

It's great that former employees and the media are stepping forward to tell this story now -- after shareholders have been wiped out along with homeowners -- but where were regulators and Wall Street analysts back when this stuff was happening?

Trillions of dollars have been introduced into the world economy since last July, when I thought it would be interesting to jump in and pick stocks prior to the carnage in the financial sector taking complete hold.

For the past eight months our government has been taking over financial institutions, absorbing debt, lowering interest rates, nationalizing some private companies, investing in others, and rebating taxes through stimulus packages to increase liquidity and spending. The Federal Reserve has essentially dropped the interest to zero.

The government was the last to announce that we are in a recession. Well, duh! However, recession or not the world is still open for business although less of it. Gold is down 30% from it's highs and oil having totally collapsed from $147 a barrel at the time of the original story to the low $30's now.

The original story was Serious Money: Tempting fate with 10 financials -- buying into a pool of financial stocks at a time when these stocks went unloved by all.

Eight of the ten financial stocks I wrote about are down or out at this point. When I last reported, the portfolio was losing 47% but it has sunk to new lows now standing at a loss of 58.56%. This compares to a drop in the S&P 500 of 29% or half the loss.

There are many analysts suggesting that we finally have arrived at the time to invest in financial stocks. Perhaps that is true, but do you invest in the downtrodden or the blue chips?

This post is part of our feature on Money Winners of 2008. See all 20.

Many of the names on our list of 2008 Money Winners are entertainers, athletes, or businessmen who are on the top of their game. Michael Phelps, Tina Fey, and subprime profiteer Bill Ackman are all examples of this kind of winner. JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon has gotten credit as being one of the few executives to keep a large financial institution from feeling too much pain in our current financial meltdown. However, Alan Fishman, who gained notoriety as the last CEO of Washington Mutual, is not any of those kinds of winner.

Instead, he wears his crown as a result of being in the right place at the right time. He replaced longtime WaMu CEO Kerry Killinger during the first week of September of this year. WaMu was seized by federal regulators just three weeks later and the banking assets were sold off to JPMorgan. Thus ended the less-than-spectacular reign of Mr. Fishman.

Fishman was paid just under $20,000 a week before taxes, which is a nice salary if you can get it, but is not nearly enough to land you on our list. However, he also got a massive signing bonus of $7.5M, plus 612,500 shares of WM. Since that stock is worthless now, we will only count the cash. He also had a golden parachute attached to his back and, unless he was fired for cause or voluntarily resigned, he was due to get another $6.15 million. Things get fuzzy when you look at his target annual bonus, which was set at $3.65 million. Since the company disappeared under his watch, I would hope he got none of that bonus, but I can't find any concrete evidence for how that matter turned out. When you total it all out, Mr. Fishman pocketed somewhere between $11 million and $18 million for his three weeks on the job. Wow.

Eighteen months ago, banks were throwing money around with very little discretion. Now we find that they made a lot of bad loans, took extreme risk and jeopardized the global economy and the well being of hundreds of millions of people.

All this was supported by a simple minded president, corrupt Congress and an over-confident, short sighted investment community maneuvering in and around a sleeping Securities and Exchange Commission.

Having invested in a broad range of real estate assets (as well as stocks), I am feeling the pain like most everyone else. Reduced values, tighter liquidity, and uncertainty rule the market place.

What has me steamed currently is that I think there is more capital in the marketplace than courage! The lack of courage along with a shortage of leadership and wisdom continues to exacerbate a bad situation. I am probably better off than many people having been able to close two loans in the past month. It was not easy. However, after dealing with many financial institutions that are now doing a better job in the review process, I see that they have swung too far to the conservative side.

This is the third in a four part series which I hope gives buyers, sellers, shareholders and dare I say management a platform for discussion.

The most valuable asset eBay (NASDAQ: EBAY) has is PayPal, the dominant internet financial transaction facilitator. When I started imagining what might happen if eBay started auctioning off its parts I envisioned that PayPal would be worth the highest premium.

I think there would be dozens of interested companies that would find it highly advantageous to acquire PayPal.

The reason eBay bought PalPal in the first place was that they had first hand experience trying to compete with it when it was a separate company, and even with its huge base of customers, eBay could not build much traction. As the old saying goes, "if you can't beat them, join them", or in this case buy them.

For starters, all of the major credit card companies would be very interested with MasterCard Inc'A' (NYSE: MA) and Visa (NYSE: V) leading the bidding and beleaguered American Express (NYSE: AXP) trying to find a way too.

Then there are the few prospering banks still left standing that would have to give this potential acquisition strong consideration. Bank of America (NYSE: BAC) which has already bought out Countrywide Financial and will soon add Merrill Lynch (NYSE: MER) would find this a must have. JPMorgan Chase (NYSE: JPM) has added Bear Stearns and Washington Mutual (NYSE: WM) to its group of enterprises and might be best suited to expand the company given its growing resources. Wells Fargo (NYSE: WFC) that recently agreed to acquire Wachovia Corp (NYSE: WB) after staying on the sidelines most of the year might want PayPal, but I do not think it would pay up.

Around the world, governments are flooding the market with new currency in order to stem the tide of bank collapses and slippery stock market slopes. They are taking over financial institutions, absorbing debt, lowering interest rates, nationalizing some private companies, investing in others, and rebating taxes through stimulus packages to increase liquidity and spending.

So far all we can say is that the world is still open for business, but it is a different world. Even gold and oil are down significantly.

In concert with world markets, the stocks in my daring (maybe fool hardy) story I posted a few months ago Serious Money: Tempting fate with 10 financials -- buying into a pool of financial stocks at a time when the "hate 'em" factor was at a peak, or so I thought -- are down even more. I think I am turning into the web's leading glutton for punishment by posting such stories. However, while my stock ideas have taken a beating now and then, I hope my integrity has remained intact.

I took some major lumps during the collapse of Washington Mutual (NYSE: WM) as I candidly posted, Chasing Value: Not -- WaMu one week later - ouch!, and I lost some money also.

Nine of the ten financial stocks I wrote about are down or out at this point. When I last reported, the portfolio was losing 4.8%, and now it is losing 47% to date, not counting dividends. Only MBIA Inc. (NYSE: MBI) is up and there are question marks about this company too.

If you're a fan of found humor as strange juxtapositions, FailBlog.org definitely belongs in your RSS feed. But it's rare that the site contains brilliant -- and unintentional -- commentary on the state of the economy.

FailBlog posted this picture of the neon sign at a Washington Mutual branch office. All that's left is "Was." Before it collapsed in the largest bank failure in history, Washington Mutual was a leader in banking and home loans. It was picked up off the scrap heap by JPMorgan Chase (NYSE: JPM).

More gallows humors: Andy Kessler has suggested that after Bank of America (NYSE: BAC) completes its acquisition of Merrill Lynch (NYSE: MER), the combined company should rename itself "Lynch America Countrywide."

Desperate Investors Making Bad Moves
There is no shortage of bone-headed moves that panicky investors are considering -- requiring their advisers to make timely interventions. The financial distress caused by the stock market's wild gyrations has investors itching to DO SOMETHING and many times it is the wrong thing.
http://money.aol.com/news/articles/_a/bbdp/desperate-investors-making-bad-moves/198748

7 Stocks With Improving Profit Margins
Arch Coal, Darling International, Guess?, Jos. A Bank Clothiers, NYSE Euronext, Raytheon and Sykes Enterprises are the stocks that make the cut in SmartMoney's newest stock screen.
http://www.smartmoney.com/stock-screen/index.cfm?story=7-Stocks-With-Improving-Profit-Margins

In the News:
Bank Accounts: What's Protected, What's Not
Bank and brokerage failures, government bailouts, a sickly mortgage market and sinking stock prices. What's an investor-or consumer-to do? There are also a few key steps you can take to maximize your coverage and safeguard your cash - just in case. Here's a who's–who-and-what's-what breakdown.
http://www.cnbc.com/id/24033914
Also: Is Your Bank Safe? Check Its Rating
Small Biz: Life After Your Bank Fails

TheStreet.com's Jim Cramer says Apple is showing us that there's very little safety in this tumultuous market.

Too little too late? For some, yes. For Washington Mutual (NYSE: WM) (Cramer's Take), yes. For Wachovia (NYSE: WB) (Cramer's Take)? Maybe.

For Apple (NASDAQ: AAPL) (Cramer's Take)?

Oops, that's the problem: The earnings are no good. We sit here and fret about European property banks that were just these blips on our early-morning screens -- Fortis? Hypo? B&B -- what the heck, I didn't even know they were important. We follow their bailouts and we wonder how in heck did we do this to them? Did we? Did they have Lehman trouble? Who didn't have Lehman trouble?

And then Morgan Stanley downgrades Apple and we get a bunch of retail downgrades and then we realize that we are in uncharted earnings and assets waters.

Wachovia (NYSE: WB) is recently trading at $4.25 in pre-open trading, below its close of $10. WB October 10 straddle was priced at $7.20 on September 26, November 10 is at $8.40 according to Track Data, suggesting larger price movement.

National City (N&SE: NCC) is recently trading at $3.64 in pre-open trading, below its close of $3.71. NCC's share price declined 25% after JP Morgan (NYSE: JPM) purchased Washington Mutual (NYSE: WM) banking assets. BMO Capital says: "NCC is not in the same situation as WM was." NCC October 4 straddle is priced at $2.45; November 4 straddle is priced at $2.75; according to Track Data, suggesting large price fluctuations.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

If not for the collapse of Washington Mutual (NYSE: WM) this week, I would probably not have posted this saga so soon after last Monday's report. However, since I was a shareholder of WaMu and thought there was value in it when I posted Chasing Value: Are you watching WaMu? I felt it was time to take my lumps.

I cannot go on ranting and raving about the failures and deceptions of others without making sure that I am forthright and transparent myself. I did post Chasing Value: Not -- WaMu one week later - ouch! but now WaMu is toast and so is some of my money.

Since I posted Serious Money: Tempting fate with 10 financials, the results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak, with each passing day investors have found something more to hate.

The portfolio is losing 4.8% to date, not counting dividends. Some of my colleagues thought it was way too early to get back into the financial sector; seems that way now, and one read me the riot act for reporting the story so soon on MBIA Inc. (NYSE: MBI) being up substantially.

It seems that there is a problem with our financial system. That could be why Bear Stearns collapsed, the government took over Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and American International Group (NYSE: AIG). This problem could also explain why Merrill Lynch sold out to Bank of America (NYSE: BAC), why Lehman Brothers went bankrupt, and why JPMorgan Chase (NYSE: JPM) bought Washington Mutual (NYSE: WM). Problems with our financial system could also explain why the Commercial Paper market is freezing up -- making it harder for companies to come up with the short-term cash to pay employees and buy inventory.

But how did our system get to this point? There are five key principles of our current financial architecture that brought us here:

• Securitization. Up until about 30 years ago, people took out mortgages from an S&L and paid their loan officer every month until they owned their house. In the 1980s, Wall Street invented securitization -- the process of buying up, say, 1,000 mortgages from mortgage companies, creating a security based on those mortgages, paying for a AAA rating, and selling the securities to investors worldwide. Securitization is a problem for reasons I'll describe below.
• Too much borrowing. Over the last several years, Financial Institutions (FI) have made some $2 trillion in fees from securitization, according to DealBreaker. One reason for this is that they have been able to buy these securities -- of which there are $13 trillion on the market between Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs) -- with a sliver of capital, roughly $340 billion. The typical FI had a ratio of assets to capital of 30:1. This meant that a mere 3% decline in the value of these securities would wipe out all the capital.

In short order, the shareholders of Washington Mutual (NYSE: WM) have lost billions. A tier-1 private equity investor, TPG, has lost $1.3 billion on the company. And, unfortunately, thousands of WaMu employees have lost their jobs.

However, there are some winners. For example, there are the short sellers. JP Morgan (NYSE: JPM) is also likely to do well since the firm bought WaMu's assets for a mere $1.9 billion.

But there appears to be yet another interesting beneficiary: Alan Fishman. He is WaMu's CEO, who took the top job 18 days ago.

As should be no surprise, he signed a juicy contract: a $7.5 million signing bonus and a lump-sum payment for severance that comes to $6.15 million. In other words, if he leaves the company, he'll walk away with $13.65 million.

That's a pretty good deal in light of the fact that WaMu is the biggest bank collapse ever.

Moreover, I suppose it is yet further evidence of why Americans have low regard for the financial system. And despite huge bailouts, it's probably a good bet that little will change.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website.

Even for the tier-1 private equity operators, a $1.3 billion loss is a big deal – especially when in comes in about five months. This is what happened today with TPG, which was a major investor in Washington Mutual (NYSE: WM). Of course, the bank's shares were virtually wiped out today because of a federal intervention that resulted in JP Morgan Chase & Co. (NYSE: JPM) owning the assets.

Interestingly enough, TPG has a long history with distressed investing. In fact, the company's founder, David Bonderman, made a fortune from the S&L crisis during the early 1990s.

But no doubt, today's environment is without any precedent. No one seems to have any clue about what's happening – which can make investing a dicey game.

True, distressed investing can result in hefty returns. It's important to keep in mind that the risks are substantial. Although, it sill looks like a variety of private equity firms still have an appetite for these plays, such as Fortress Investment Group LLC (NYSE: FIG).

However, the big beneficiaries may not necessarily be private equity firms. Even the recent loosening of regulations, private equity firms are likely only to make minority investments in banks.

Instead, it may be the major banks – such as JP Morgan – that will clean-up on the mess on Wall Street. They have strong balance sheets and tremendous asset bases to make such deals payoff.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website