Washington Mutual went from a 119-year-old bank worth $307 billion to the biggest bank failure in US history, and the cause was its own pay plan.

• To catch Countrywide and Wells Fargo, WaMu shifted from safe fixed-rate mortgages to risky subprime and "pay what you want" loans.
• The risky loans simply paid the bank more — subprime earned eight times the margin of a 30-year fixed, so that is what everyone sold.
• Its ad campaign was literally "the power of yes," and internal checks later found huge shares of loans with no real income, no assets, and outright fraud.
• Borrowers took the minimum payment option, which quietly grew the loan instead of shrinking it — a $500,000 mortgage could balloon to $1.4 million.
• Profits of $3.5 billion in 2006 turned into billions in losses by 2008; customers pulled $16.7 billion in eight days, regulators seized the bank, and JPMorgan Chase bought it for $1.9 billion.

Outlook: The lasting lesson for any business is that whatever behavior you pay for is the behavior you will get, so incentives need guardrails before growth outruns them.