The source of Sheila Bair’s power

By Felix Salmon
June 16, 2009

Noam Scheiber asks how Sheila Bair seems to have managed not to hold on to her job (that can be explained by reference to the fact that she has powerful protectors in Chris Dodd and Barney Frank) but on top of that seems set to emerge the big winner from the coming regulatory overhaul — despite the fact that few senior administration officials seem to like her very much.

The answer, I think, is pretty simple: she who has the gold makes the rules. And when you follow the money, it invariably comes from the FDIC: she provided the guarantees necessary for the Citigroup and BofA bailouts, as well as the hundreds of billions of dollars in additional guarantees necessary (although, as we’ve seen, not sufficient) to get PPIP off the ground.

In a world where Congress will give exactly $0.00 for any further financial bailouts, the bottomless pockets of the FDIC are hugely valuable, and the FDIC chair is therefore incredibly important. What’s more, the FDIC can raise substantial funds through charging banks money for the insurance it provides. No other regulatory agency, bar the Federal Reserve itself, is an outright profit center in that way. (And guess what, it seems that the Fed itself is going to be an even bigger winner than the FDIC in all this.)

By Ockham’s razor, Bair is powerful ‘cos she’s rich. There’s no need to resort to explanations requiring her to have particular political prowess or economic foresight.


2 comments

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You’re missing a huge piece to Bair’s power, Felix.

Unlike Geithner and Summers, she has no personal baggage to drag down her rep with the public. She did not curry favor with Wall St. tycoons while “overseeing” the NY Fed. Did not fail to pay her taxes and buy too much house in Westchester. She did not make 5 million dollars last year from 5 minutes of work for a big mysterious hedgefund (over whom she was about to have the power of life and death). And she did not dismantle regulatory frameworks in the Clinton era in a clear case of “accidentally” knocking down a load-bearing wall (oops).

Bair and Warren are perceived by the informed public as clean stewards with big brooms. Their power will only grow.

Posted by Kelli K | Report as abusive

“Bair and Warren are perceived by the informed public as clean stewards with big brooms”.
Clean-Stewards!Hahahahahaha!

Posted by Tomsk | Report as abusive