Bair’s FDIC frenzy

June 8, 2009

bair– James Pethokoukis is a Reuters columnist. The views expressed are his own –

It’s an unhealthy sign for the U.S. economy that the most fascinating, if not divisive, player on the financial stage is the head of the Federal Deposit Insurance Corporation. But such is the case with Sheila Bair.

Although there is mounting evidence that the worst of the banking crisis may have passed, Bair continues to command center stage. The latest, if the unnamed sources chatting to the Wall Street Journal are to be believed, is that Bair wants to shake up top management at Citigroup. Presumably this would include the ouster of Citi’s chief executive, Vikram Pandit.

To be sure, Pandit would rank high on anyone’s list of “CEOs most likely not to make it to 2010.”

The Obama White House has mulled pushing out Pandit, but has hesitated to pull the trigger reportedly because of a lack of a compelling successor. And one could certainly make the argument that because of both moral hazard and governance issues, troubled banks should see management decapitated if forced to seek government support.

But that Bair would be the catalyst for Pandit’s dismissal is surprising, or at least weird. In a recent television interview, Bair said that management at U.S. banks “needs to be evaluated” with tough questions asked: “Have they been doing a good job? Are there people who can do a better job.” Queried whether she thought some managers should be replaced, Bair replied, “Yes”.

But before the program was even broadcast, the FDIC was out with a clarifying explainer that explicitly emphasized that Bair “did not suggest the federal government will remove the bank CEOs.”

Now less than a month later, it appears that Bair is doing just what the FDIC said she was not doing, with government officials even whispering to U.S. Bancorp Chief Executive Jerry Grundhofer, who recently joined Citi’s board, to see if he wants the gig.

What’s more, this apparent play to push out Pandit comes at the same time that Bair has been suggesting the FDIC be designated at the new “super-regulator” to deal with systemically important financial institutions. (The Federal Reserve now appears likely to get the designation instead.)

All this plays into a growing suspicion — originally sparked by her quick-trigger seizure of Washington Mutual — that the former business school professor and Republican political aide, passed over for Timothy Geithner as Treasury Secretary, is doggedly determined to maintain her “power player” status in the nation’s capital.

Enough now. The first 4-1/2 months of the Obama administration has seen record spending, the de facto nationalization of General Motors and Chrysler, and the legislative wheels put in motion for the wholesale, government-led revamping of the country’s healthcare and energy industries.

Any business or investor looking for certainly or stability in public policy would find only the whirlwind.

This all began on Wall Street, let it end there as well. Allow the banks to take advantage of the favorable yield curve and inch their way back to health — and let the head of the FDIC return to relative anonymity.

6 comments

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We all now wait and see which top regulator will be the recipient of new sweeping powers over this industry or that. I imagine power struggles to gain access and favor with the President abound. Not that this is a new development, simply the reach for power is extending to new heights. It seems a bitter irony that we have become that which 16 million Americans fought to defeat in 1945. Perhaps it is here at home the fight for democracy and liberty should be taking place.

Posted by Anubis | Report as abusive

All businesses which require or benefit by government support, either directly – capital infusions, or indirectly – guarantees of their liabilities, must be heavily evaluated on a continuing basis by the government. That is the only deal which is fair to all stakeholders, starting with the taxpayers who are rescuing these businesses from failure. Too bad if the executives lose their lucrative positions, or the businesses are restructured in bankruptcy.

Posted by Bob R | Report as abusive

Thusfar,the reporting on Bair has been mysteriously positive. There is a real story here that hasn’t been completely told. I am still waiting for a full disclosure, which I’m sure will come in time.

Posted by Jack Frayer | Report as abusive

Wamu was destroyed by her incompetence to correctly assess the situation. She and Jamie Dimon should be exposed for the criminals they are.

Posted by Hank Fields | Report as abusive

Special thanks to James Pethokoukis for writing this blog entry.

Also James, hope you realize this is only the tip of the iceberg, right???

Posted by Petros | Report as abusive

“It seems a bitter irony that we have become that which 16 million Americans fought to defeat in 1945.” – Posted by Anubis
______________________
No, Anubis, BHO doesn’t look like a Fuehrer – just yet.
However BHO administration looks more and more like Politburo, and he himself every day looks more and more like Secretary General rather than President.

Posted by Anonymous | Report as abusive