MonkeyBusinessBlog: FDIC's Sheila Bair Wears "A Badge of Honor".

In a sick, troubled sort of way, I have to admire folks who, after having completely screwed up their high profile and important jobs, manage to not only show their face in public but also act as if nothing happened. Here is Sheila Bair today from Bloomberg News;

“The criticism that we haven’t been moving fast enough in implementing Basel II -- I wear that as a badge of honor,” Bair said in an interview yesterday. She said that if the U.S. had fully adopted the new standards, “our large banks would have had a lot less capital going into this crisis, which would have been very problematic.”

Now to be fair to Ms. Bair, she may be completely correct in her stance on Basel II. Personally, I would follow the rule that if Tim Geithner is for it, I'm against it. It's kind of like the complete opposite of what Burger King used to do when picking out sites for new stores. They would let McDonalds do all the research and then just pick a site down the road from whatever new site McDonalds picked and build a Burger King. If Geithner says something is good, it's bad. There's a new rule.

Anyway, I digress. A day after Ms. Bair had to finally admit that the Deposit Insurance Fund was kaput and needed to borrow money from its member institution (through the advance payment of 3 years worth of insurance fees!) she talks about wearing a "badge of honor". That's really something. Hopefully that badge doesn't clash with gigantic dunce cap that she also must wear. To be fair again to Ms. Bair, she is not alone in wearing the dunce cap. There is enough hats to go around for everyone. What this crisis has clearly shown is;

Regulators displayed a stunning display of ignorance and loss of memory by allowing so many institutions under their watch to blow themselves up the old fashioned way. No fancy securities, just old fashioned bad banking. They expanded their balance sheets exponentially using the same crack cocaine that allowed the Savings & Loan industry to blow itself up in the 1980's, "Brokered Deposits" or "Hot Money". They used this hot money to pile into the same bad commercial and residential real estate loans that also blew them up in the 1980's because, "everybody else was doing it."
State and National politicians meddled with the regulatory process every step of the way to make sure that regulators who wanted to do the right thing were thwarted. After all, the various bank lobbyists weren't paying them to just sit around and do nothing. No, they were paying the politicians to make sure the regulators sat around and did nothing.

Here's a good read from Bloomberg's James Sterngold FDIC Watched as "Hot Money" Boomed at Defunct New Frontier Bank.

What really puzzles me is when or why did Sheila Bair become the star that so many in the media have painted her to be over the last 18 months? I think it started on CNBC. Maybe because next to Hank Paulson, Chris Cox and Tim Geithner she seemed to at least have a brain in her head. Maybe she does but it doesn't really matter. The FDIC's insurance fund is out of money. Ms. Bair assured us just one year ago that that would never be the case. I know that the FDIC will never go broke (just to avoid a lecture from Chris Wahlen or Barry Ritholtz) but that is not the point. The point is, the FDIC and the rest of the federal and state bank regulators blew it, and Shelia Bair was a major player. The money to replenish the Deposit Insurance Fund will have to come from somewhere. At the moment it is the banking system. I guess they can take all the excess reserves the Fed has pumped into them to lend to the FDIC (that's a funny picture). Next stop? I think you know the answer.

Comments

Bair isn't doing a great job but she has been far more accountable and far, far more honest than the other "power players"

Posted by: RPB | October 01, 2009 at 05:48 AM

I think Ms. Bair is doing fairly well considering all the crap bureaucrats that are surrounding her in DC. At the very least, Ms. Bair is trying to do her part to help our economy and the taxpayers by acknowledging that Timmy/Ben are just a puppets for our banksters.

As Mish says, "1) Shelia Bair stood up to Geithner regarding the PPIP and banks being allowed to bid on their own assets. Clearly she recognized banks bidding on their own assets at taxpayer risk was outright fraud. Of course, I think the whole PPIP proposal was (and still is) fraud, but in retrospect I have to wonder if her stance caused this ridiculous program to go on the back burner. If so, Bair deserves a salute. Note that PPIP is still not up and running.

2) Shelia Bair is now refusing to borrow money from the treasury (taxpayers) to shore up FDIC. Instead, she has been raising fees and now is proposing pre-paid fees. In other words, she strives to make the riskiest banks pony up for their mistakes, as opposed to dumping the risk on taxpayers."

http://globaleconomicanalysis.blogspot.com/

Posted by: g | September 30, 2009 at 05:25 PM