Sheila Bair

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Sheila Colleen Bair is the Chairwoman of the Federal Deposit Insurance Corporation FDIC. While appointed by President Bush, Sheila Bair has become a fervent critic of the banking industry as head of the FDIC. In 2009, Forbes named Bair the #2 most powerful woman. [1] Bair was among the earliest to raise warnings on the housing market crisis. [2]

Role in 2008 Financial Crisis

As early as 2008, Bair has seen her reputation increase as head of the FDIC. Bair has publicly criticized plans announced by Bush Administration agencies, including the Treasury Department. [3] She proposed a different plan: "a $24.4-billion program aimed at preventing 1.5 million foreclosures." [4] However, Treasury Secretary, Henry Paulson, asserted in the media that he would not pay for this plan.[5] Bair has been described in the media as the banksystem's "ultimate backstop." "Ms. Bair has held the banking system together, coordinating smooth takeovers of distressed banks in deals run and controlled by her agency. I wouldn’t exactly say she’s flying under the radar screen since these bank takeovers are front-page news. But without holding the center-stage attention that Paulson has, she has seamlessly closed and reopened IndyMac, Washington Mutual, and Wachovia." [6] In October 2008, Bair strongly criticized the Bush administration's $700 billion bailout plan as failing to help Americans facing foreclosures. "Defaulting borrowers were at the root of the crisis. "So why not tackle the borrower problem," she remarked. [7]

"Bair orchestrated Citigroup's $2.1 billion acquisition of Wachovia's banking business and JPMorgan Chase's $1.9 billion acquisition of Washington Mutual, the 13th bank this year to fail. Bair has gotten high marks for her handling of both cases." [8] Bair has also spoken against the "too big too fail strategy." She stated in Congress testimony that the government's strategy of too big to fail must end. "Bair told Congress a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system is needed." [9]

More recently, Bair has applauded the passage of the Financial Reform Bill, but she spoke out against Lincoln's derivative provision Blanche Lincoln. "Bair believes banks should be able to hedge against interest rate and currency risk for themselves and their customers. During a May 5 speech on the Senate floor, Lincoln said banks can continue to do exactly that even if her proposal is adopted into law. "Banks that have been acting as banks will be able to continue doing business as they always have," Lincoln said. "Community banks using swaps to hedge their interest rate risk on their loan portfolio will continue to be able to do so. Most important, we want them to do so." [10]

Regarding the passage of the Financial Reform Bill, Blair had this to say: "“Today represents a significant milestone in the history of financial regulation in the United States. With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a meaningful framework is now in place that addresses many of the weaknesses in our financial system that led to the financial crisis.” [11] Bair believes the new financial reform bill will stop the strategy of too big to fail. "New powers allowing regulators to seize and liquidate failing institutions would act like a threat hovering over the financial industry, deterring firms from growing oo large or reckless. "This is a kind of a nuclear bomb that you hope you never have to use," Ms. Bair said. "The fact that it's there, I think, is going to be important. And if we have to use it, we will." [12]

Bair's Interview with Frontline

"It was a breakdown at every step of the way, and regulators included. The majority of it was done outside of insured depository institutions. But there were some banks that were doing it, too. And I think that was more in response as they were losing market share to third-party originators who were the shadow banking system -- pretty much completely outside the regulatory system. They could get funding from Wall Street securitizations, and again, the risk was being passed on to investors who also weren't looking at the underlying mortgages. And borrowers, ... it was still working for them so long as the housing market was going up." [13] In the interview, Bair commented also on Lehman Brothers and Bear Sterns. Additionally, Bair once again stressed the importance for addressing the problems in the housing sector. "We are in the self-reinforcing cycle of foreclosures leading to further home-price declines, leading to more foreclosures. The housing market did have to correct. There will be more foreclosures. But I truly believe, based on all of our research and what we've seen at Freddie Mac and other servicers and going out to foreclosure-prevention efforts and working with the consumer groups, there are a lot of unnecessary foreclosures going on. There are a lot of people in their homes [who] want to stay in their homes, can't make the current mortgage payment, but could make a modified mortgage payment." [14]

Bair's Criticism of Greenspan

Before becoming chairman of the FDIC, Bair was highly critical of the Federal Reserve under the leadership of Alan Greenspan at the time. In an interview with the New Yorker, Bair links the financial crisis to a lack of regulation under the Fed. "“The Federal Reserve Board was really the only authority that could set lending standards across the board—banks, non-bank lenders, any mortgagor. . . . And it affirmatively did not do that.” As long as housing prices continued to rise, borrowers could always refinance their loans and take out some cash, which helped fuel consumption and the economic boom. “It was hard to take the punch bowl away,” Bair continued, “because even though these practices were starting to spread, and there were subsets of consumers that were getting hurt, for the most part everyone was making money, right?” She added, “The political pressure was to let it be. [15]

Bair also expressed this criticism during a Frontline Interview. "But what we know now is that there was too much liquidity. There was too much money chasing too few assets, and so they were looking for leverage to juice up their returns, and that led to a significant deterioration in credit quality standards. I do think there was one thing that the Fed should have done, [which] was acted much earlier. … Congress did not have the momentum to pass lending standards that applied across the board, but the Fed did have the power under HOPA [Homeowners Protection Act] to do that. And that was something that Ned [Gramlich] had really advocated for, and they did not do that." [16]

Articles and resources

Related SourceWatch articles

FDIC

See also

References

  1. [1], "Forbes" August 19, 2009.
  2. Times Topic, "Sheila Bair,", "New York Times,"
  3. Jim Puzzanghera "FDIC Chief in Tune with Democrats,", "Los Angeles Times," November 18, 2008.
  4. Id.
  5. Id.
  6. Larry Kudlow, "Our Bair Necessity,", "National Review," September 30, 2008.
  7. "FDIC Chair Speaks Out Against Bailout,", "NPR Marketplace," October 16, 2008.
  8. Theresa Howard, "FDIC's Bair Emerges as Key Player in Bank Rescues,", "USA Today," October 3, 2008.
  9. "FDIC's Bair: Too Big to Fail Strategy Must End,", "CNBC News," March 19, 2009.
  10. Shahien Nasiripour, "Another Fed Official Supports Plan Forcing Banks to Spin Off Derivatives Units,", "Huffington Post," June 16, 2010.
  11. [2], "Financial News," July 15, 2010.
  12. Jessica Holzer, "Bair Says Bill Will End Too Big to Fail,", "Wall Street Journal," June 25, 2010.
  13. Inside the Meltdown, "Sheila Bair Interview,", "Frontline," Feb. 17, 2009.
  14. Id.
  15. Ryan Lizza, "Sheila Bair, FDIC, and the Financial Crisis,", "The New Yorker," July 6, 2009.
  16. Inside the Meltdown, "Sheila Bair Interview,", "Frontline," Feb. 17, 2009.

External resources

External articles