The NYT’s Gretchen Morgenson talks to a former WaMu mortgage underwriter, who dishes on what sure seems to us like outright fraud at the bank, which because of all that dirty business became the biggest bank failure in American history.

But the headline, “Was There a Loan It Didn’t Like?” is wishy-washy and dilutes the impact of the column, which has plenty of interesting details about the boiler-room-like mortgage operation at the bank.

One loan file was filled with so many discrepancies that she felt certain it involved mortgage fraud. She turned the loan down, she says, only to be scolded by her supervisor.

“She told me, ‘This broker has closed over $1 million with us and there is no reason you cannot make this loan work,’ ” Ms. Cooper says. “I explained to her the loan was not good at all, but she said I had to sign it.”

The argument did not end there, however. Ms. Cooper says her immediate boss complained to the team manager about the loan rejection and asked that Ms. Cooper be “written up,” with a formal letter of complaint placed in her personnel file.

Ms. Cooper said the team manager told her to “restructure” the loan to make it work. “I said, how can you restructure fraud? This is a fraudulent loan,” she recalls.

Ms. Cooper says that her bosses placed her on probation for 30 days for refusing to approve the loan and that her team manager signed off on the loan.

Good job by Morgenson, who deserved a better assist from her headline writers.

The Journal is good in its long piece this morning on AIG, and how it relied on a professor, Gary Gorton, whose risk models on credit-default swaps turned out to be woefully inadequate.

AIG began selling credit-default swaps around 1998. Mr. Gorton’s work “helped convince Cassano that these things were only gold, that if anybody paid you to take on these risks, it was free money” because AIG would never have to make payments to cover actual defaults, according to the former senior executive at the unit. However, Mr. Gorton’s work didn’t address the potential write-downs or collateral payments to trading partners.

Whoops.

And the apple never falls far from the tree:

In 1987, AIG launched its financial-products unit with Howard Sosin, a math expert and former Drexel Burnham Lambert executive. Among his hires were Joseph Cassano, a former Drexel colleague. After Mr. Sosin left, Mr. Gorton joined as a consultant in the late 1990s. Mr. Cassano later took over the unit.

Drexel, of course, was the scandal-plagued home of Michael Milken that went bust in 1990.

The WaPo also has a nice story on AIG, reporting that some are questioning how the government structured its rescue of the insurance giant, which so far has resulted in $143 billion in taxpayer loans. Some even question whether the Feds should have let it go under. But that seems to me like it would have resulted in a disaster, a real head-for-the-hills time.

The Times reports that the bill for all those private-equity deals in the bubble is about to come due:

When the economy was booming, the firms made huge profits by cutting costs at their new acquisitions, improving operations and then turning around and selling them. In 2007, at the height of the bubble, such deals totaled $796 billion, or more than 16 percent of the $4.83 trillion in all the deals made globally that year, according to data from Dealogic.

Firms like the Blackstone Group and Kohlberg Kravis Roberts & Company, faced an image problem at the height of the bubble for excessive compensation and beneficial tax treatment, but their returns were so high that even investors like pension funds were drawn in. Now these firms, built on enormous amounts of debt, are being forced to go back to the financial markets just as those markets have nearly frozen up.

If history is any guide, the worst may be yet to come. Steven N. Kaplan, a professor at University of Chicago Graduate School of Business, found that nearly 30 percent of all big public-to-private deals made from 1986 to 1989 defaulted. Afterward, private equity players were called to testify before Congress, and movies like “Wall Street” and “Other People’s Money” depicted financiers as greedy criminals.

The Times scoops that the government is turning down GM’s request to finance a merger with Chrysler.

Breakingviews posts an insightful column and applauds the definancialization of the economy:

But finance helps the economy in much the same way the way a police force or an army helps keep the peace. Countries would be delighted to get the same order with fewer forces. They should be equally happy to get the same production and trade with less finance. Finance is a cost — not a benefit — of maintaining a complicated economy.

The Journal is good on the Chinese dairy scandal, getting on the ground to talk to farmers.

About two years ago, farmers and Chinese authorities say, some manufacturers offered a new version of protein powder that they said could still fool dairies that had caught on to other protein additives. It contained melamine, but wasn’t labeled as such. “Everyone just called it protein powder,” says the second farmer. “Nowhere did it say it was melamine, ” he says. “People never thought about it and never thought they needed to know more details.”

Liu Wuqiang, another dairy farmer in Hebei, says, “farmers had no idea it was poisonous.” He says, “We were just afraid that our milk would be returned and wasted.” He says he never added anything to his milk.

Speaking of China, the LA Times has a good look at the country’s “worst manufacturing decline in at least a decade,” which it says is shuttering plants all over the country

Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-material costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold — prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories — many operations were pushed over the edge.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.