Comments on: Sheila Bair against the world A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: klhoughton Mon, 01 Oct 2012 04:26:07 +0000 “[Geithner’s] biggest weakness is that he isn’t political enough, rather than that he’s some kind of master puppeteer.”

This is just horse shite, Felix. You know better. If you don’t believe me, ask Brad DeLong, who was championing Timmeh even back when you knew better and thought then that it was a positive thing that Geithner “was never on the losing side of an argument” in the Clinton White House.

By: Foppe Fri, 28 Sep 2012 17:39:30 +0000 Here ya go Felix, Hoenig on the fantastic status of Basel III: ““promises precision far beyond what can be achieved for a system as complex and varied as that of U.S. banking.” 2/09/28/a-better-alternative-to-basel-ca pital-rules/

Please reconsider your uncritical stance towards “soft-spoken men”. It is not a proxy for urbanity, nor is that a proxy for quality.

By: AABender1 Thu, 27 Sep 2012 19:53:01 +0000 RCWhalen:

I noted at the very outset of my comment, that I think that there should be “a pox on all of their houses” and that includes Geithner’s house. That alone should have been a clue that mine was not an apologia for Geithner.

On the other hand for you to assert that Bair “handled the finances of the FDIC superbly during the crisis” belies a lack of basic numeracy as well as an understanding of the facts relating to the FDIC’s DIF.

During the crisis, Bair’s DIF was being depleted at alarming rates; as a result, she: (i) increased premiums to banks, including community banks, and (ii) had banks, including community banks, pay the FDIC the premiums three years in advance.

Why three years? Because the FDIC finally realized that they might run out of cash.

So (ii) above as much as proves that the DIF was at least three years behind in the assessment of its premiums, i.e. it was poorly run insurance company.

And why else did Bair need to do this superb thing, as you call it?

Well, (i) the DIF became insolvent under her watch, and (ii) if she didn’t charge banks their premiums three years forward, she would need to go and borrow on the FDIC’s $100 billion line from the Treasury.

And if she had done that–borrow from the Treasury to fund bank failures–Tim Geithner surely would have been in a position to tell her and the FDIC what to do.

So I think you are elevating and confusing a purely intersticine internal government agency fracas speciously into something more lofty and moral.

And finally, there is a relationship between the FDIC’s DIF and TARP.

The fact remains that the FDIC’s DIF was critically underfunded at the crises’ inception. And that, among other lesser reasons, was why taxpayer money was needed to get us through this–i.e. TARP.

By: JRosner Thu, 27 Sep 2012 18:33:36 +0000 Felix, it is interesting to see you go after Chairman Bair in the manner you do. You fail to mention her mutually respectful and good working relationships with Secretary Paulson and Chairman Bernanke and suggest that Secretary Geithner was in favor of higher capital standards under Basel.

Either you are being fed a line or you do not have an accurate memory or experience with the subject. First of all, the calculation of capital, as you know is not a finite issue. During the period in question there were many pushing for capital to include ‘contingent’ capital instruments. Chairman Bair and the FDIC pushed back against those instruments given the reality that, as many bank friendly regulators knew, when push came to shove in a crisis nobody would be willing to trigger the conversion… thus it was not really capital in the first place.

I would also remind you that were it not for the strong backbone of Chairman Bair, her predecessor and the FDIC staff the US would not have retained a ‘leverage ratio’… Basel was against a leverage ratio (only one member country and the FDIC supported a leverage ratio) and the NY Fed helped the banks push back against it at Basel.

Had the FDIC given up on the leverage ratio (to the NY Fed) our banks would have been and would still be in much worse shape. While I am not often a big supporter of Barney Frank I do give credit where it is due and he was instrumental in supporting the FDICs pushback against Basel on the leverage rule.

It is not paranoia nor a persecutions complex for Chairman Bair to suggest that in the development of many of the alphabet soup of programs and the first stress-test (pre CCAR), Treasury would initially agree to strenuous FDIC demands only to shift positions to a more bank friendly programs.

I do not believe Secretary Geithner is either malevolent or Machiavellian, in fact I do believe he genuinely believed that what he was attempting was best for the system even if it was driven by an arguably misguided belief that saving failed institutions through secret recapitalizations and bailouts was the best way to do so.

Still, his perspective was incorrect at the front end of this crisis. Where Chairman Bair recognized the risks that were upon us, it seems Secretary Geithner (and, to be fair, many others) failed to see the warnings and then pushed back against the more correct views of those, like Chairman Bair, who did.

This can be seen in the following comments made by Secretary Geithner in May 2007:

“Changes in financial markets, including those that are the subject of your conference, have improved the efficiency of financial intermediation and improved our confidence in the ability of markets to absorb stress. In financial systems around the world, the capital positions of banks have improved and capital markets are becoming deeper and playing a larger role in financial intermediation. Financial innovation has improved the capacity to measure and manage risk”.

By: vanmorrisonfan Thu, 27 Sep 2012 18:11:06 +0000 I wonder what Sheila has to say about IndyMac. She was involved in the great deal that the buyers of the failed IndyMac got (now known as OneWestBank). Those guys made an embarrasment of riches…

By: Mark4096 Thu, 27 Sep 2012 16:40:19 +0000 @AABender1

If the FDIC had been adequately reserved, the Treasury might not have needed to ask the Congress for TARP (i.e. taxpayer monies) to “bailout the banks.”

To put it nicely, this statement is silly. The FDIC ensures that most depositors get all or most of their money in the event that a bank fails. TARP’s goal was to keep banks from failing. An adequately funded FDIC will not save banks from failing.

By: youniquelikeme Thu, 27 Sep 2012 16:39:33 +0000 “she has a tendency to think of herself as the sole defender of what is good and true, even as the rest of the government allows itself to get captured by the rapacious financial services industry.”

Propping up the crumbling TBTF with chewing gum and looking the other way so the revolving door doesn’t hit him in the derriere… is what the likes of Tim Geithner aspired to. Propping up Wall Street to the detriment of Main Street was a plan and Geitner’s eyes only stopped darting when his nose was firmly planted.

He makes Bair appear saintly.

By: Chris08 Thu, 27 Sep 2012 15:33:17 +0000 I think Bair should be praised for stating her viewpoint frankly and fearlessly. Too many public servants give mealy mouthed accounts of their experiences in order not to offend anyone. I would also be wary of defending Geithner, pretty much a Wall Street facilitator in my view. I saw him in an exchange with Elizabeth Warren whom he treated like an annoying gnat when she was disagreeing with his viewpoint. Arrogant man.Too arrogant.

By: rcwhalen Thu, 27 Sep 2012 12:45:11 +0000 It is interesting to see the personal way in which Felix has chosen to attack Chairman Sheila Bair. The comment by Mr. Bender is completely off target as well. Both Salon’s attack and Bender’s comment reek of instigation, by and for our beloved Treasury Secretary Timothy Geithner.

In fact, Chairman Bair handled the finances of the FDIC superbly during the crisis and then helped Congress set in place a new financing scheme for the insurance fund that is far more equitable for smaller banks.

Because Bair was willing to do her job and not kotow to the largest banks, she has earned the enmity of Geithner and his servants in the media. The FDIC did not need support from Treasury. The notion that there was some connection between the FDIC insurance fund and TARP is ridiculous.

For myself, I think Chairman Bair is one of the finest civil servants of recent times. I hope that she will continue to be active in public service. In fact, I hope Chairman Bair considers a run for the White House.

By: AABender1 Thu, 27 Sep 2012 11:56:20 +0000 Felix:
I am no fan of Bair, Geithner, Paulson, et. al., and I generally ascribe to the “a pox on all of their houses” conclusion.

But why anyone would read of listen to anything that Sheila Bair is spouting off about this week is beyond me.

She completely failed at her FDIC job.

The FDIC is essentially an insurance company; Bair had two principal tasks to discharge as the head of an insurance company: (i) estimate the future losses of the insureds (the banks), and (ii) charge enough premiums to cover those losses. She did neither. (This is abundantly clear from the FDIC’s website and its quarterly reports from the CFO to the Board from 2007 forward.)

Before the crisis, say at the end of 2007, the FDIC’s best estimate of all future losses in the US banking system was a mere $124 million.

The DIF (deposit insurance fund) had about $51.5 billion in reserves.

By 2011, the FDIC’s insured losses (bank failure costs) were in excess of $80 billion, and the DIF had been in deficit for seven successive quarters.

That’s an FDIC best estimate prediction of $124 million versus a reality of $80+ billion.

And by the way, Bair not discharging her two central job functions is not a trivial issue. If the FDIC had been adequately reserved, the Treasury might not have needed to ask the Congress for TARP (i.e. taxpayer monies) to “bailout the banks.” Bank premiums would have covered the losses and the resolutions might have been less politically charged, including Bair’s pet peave, Citibank.

Therefore, Bair’s complaints about Citibank being saved unnecessarily are really complaints about her own mismanagement of the FDIC’s insurance fund.

And if Bair didn’t even discharge the two critical tasks required of her as head of the FDIC, why should we even waste our time listening to her complaints or analysis now?