Sheila Bair not cowed by Geithner tantrum, criticizes Obama

August 4, 2009

Last week Tim Geithner dropped multiple F-bombs in a meeting with regulators unenthusiastic about his plan to concentrate oversight of the financial system at the Fed.  Sheila Bair was one of his targets, but today she held her ground.  In testimony before the Senate Banking Committee this morning, she had this to say about concentrating regulatory power at the Fed:

we do not see merit or wisdom in consolidating federal supervision of national and state banking charters into a single regulator for the simple reason that the ability to choose between federal and state regulatory regimes played no significant role in the current crisis.

One of the important causes of the current financial difficulties was the exploitation of the regulatory gaps that existed between banks and the non-bank shadow financial system, and the virtual non-existence of regulation of over-the-counter (OTC) derivative contracts. These gaps permitted lightly regulated or, in some cases, unregulated financial firms to engage in highly risky practices and offer toxic derivatives and other products that eventually infected the financial system…

She hits back at the administration pretty hard:

In light of these significant [regulatory] failings, it is difficult to see why so much effort should be expended to create a single regulator when political capital could be better spent on more important and fundamental issues which brought about the current crisis and the economic harm it has done.

She makes great points throughout.

But we can’t let Sheila and FDIC off too easy, though.  They’ve been undercharging for deposit insurance for years, which meant they didn’t have the resources necessary to resolve too-big-to-fail financials when they collapsed last fall.  Instead FDIC was forced to delay the reckoning, offering big banks a federal guarantee for their debts.

But at least Bair recognizes the terrible precedent that has been set, and wants to move decisively to reverse it.

John Dugan over at OCC also questions the wisdom of concentrating too much power at the Fed, though he and Sheila clearly have their disagreements when it comes to the proposed Consumer Financial Protection Agency.  She’s a big fan of existing proposals.  He’s got qualms with it.

Incidentally, I agree with my colleague Matt Goldstein that it’s good to see Tim Geithner get mad for a change.  A little anger is certainly appropriate.  I also agree with him that Geithner’s anger seems misdirected.


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About time, we have someone who understands (and admits) what the God Dam Problem has been–Thieves in the financials gambling with tax-payer money on “complicated derivitives”–same as a God Dam Ponzi scam !
Go Bair ! Go Cuomo !

Posted by James Alexander | Report as abusive

I would expect that the Secretary of the Treasury would have more respect for the office that he holds than to verbally berate and abuse colleagues with profanity.

Of course, we shouldn’t be surprised, since he had so much respect for the tax laws that he “accidentally” underpaid his taxes, and didn’t even have the integrity to insist on paying the penalties once he was caught.

Lack of respect and decorum seem to be prevalent throughout this administration, though – so why are we surprised???

Posted by Carol Brown | Report as abusive

The banks lobbied against paying the high assessment rates when everything was going well, and they won.

Posted by Kathy Riley | Report as abusive

Actually, the banks lobbied against any assessment rate and got their way.

Posted by Kathy Riley | Report as abusive

I don’t know how the OCC is financed.
However, I hear that the Office of Thrift
Supervision (OTS) collects fees from each
regulated thrift. That was in an NPR
story of June 5.

I think it’s a big mistake for any regulator
to get paid by the regulated to regulate
them. I don’t think the OTS can be
taken too seriously.

David Bernier

Posted by David Bernier | Report as abusive

Bair has been a voice of common sense throughout this debacle. That she is honest in her response to legislative questioning is consistent for her.

That Geithner might blow a plug because she opposes the single regulator part is understandable as well. On the other hand she supports the consumer finance protection commission, as does Geithner.

I’m more in favor of the CFPC and hope another independent lady, Prof. Elizabeth Warren, gets that post.

Posted by beezer | Report as abusive

Sheila Bair is an out-of-control Republican narcissist who has undermined the Obama Administration at every turn, and has been busy this week leaking damaging information on Timothy Geithner. I hope Obama kicks her to the curb as soon as her current term at the FDIC is completed.

Posted by Yakubu | Report as abusive

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Bottom-up, baby. Micro-intelligence. That’s where regulators needs to spring from.

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