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Sheila “Bair”s Her Mind

Posted by Larry Doyle on June 14, 2009 12:43 PM |

Sheila Bair, Head of FDIC

Sheila Bair, Head of FDIC

I have always held Sheila Bair in high regard. Why? I believe she has no agenda other than what is best for our country. I find her to be tough, but fair. I think she prioritizes integrity, transparency, and reputation–all of which we badly need, but are in short supply.

Ms. Bair is currently engaged in an active debate about potential management changes at Citigroup. She is no shrinking violet in taking on any and all Wall Street heavyweights. I commend her for that. Additionally, she is giving “no quarter” in defending her positions on financial regulatory reform.

Ms. Bair recently spoke with Forbes, Bair Cautions Banking Crisis Is Not Over.  Ms. Bair does not pull any punches or play the pandering games regularly seen in Washington and on Wall Street. As such, I think it is prudent for all of us to listen closely to what she has to say. Forbes reports:

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be “many more bank failures” ahead.

“I think there’s still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that’s under significant stress.”

How many other government officials are equally as blunt? How many regulators will openly address the fact that the toxic assets are still very much an issue and that the economy is under ‘significant stress’? Our country is screaming for some good old-fashioned truth combined with straight talk. Ms. Bair provides it. Let’s go back for some more. What does Sheila Bair think about the economy? Green shoots? Turning the corner?  Bair provides sobering commentary:

“We still don’t know how deep the recession is going to be,” she said, adding, “we’ll still be well below what we were in the S&L days.”

Her cautious comments come as investors have been increasingly cheered by news in the banking sector. Markets were reassured by the results of government “stress tests” that evaluated how the 19 largest banks would perform during a worsening recession.

Do you get the sense that she is trying to properly manage expectations for those who may be getting overly ebullient about the rebound in our equity markets? I do. Why is Ms. Bair sending this message? She knows what the banking system truly holds. She is far better positioned to provide a clear window into these banks than Turbo-Tim Geithner or Big Ben Bernanke. I strongly recommend we listen attentively to her.

Sheila Bair sends a note of caution on the need for ongoing infusions of capital into the banking system given the embedded losses on the aforementioned toxic assets:

“Hopefully there are no more events that create liquidity stresses on the banks,” Bair said, knocking on a wooden conference room table, “and now we’re having more good old-fashioned capital insolvencies.”

Will the Brave New World of the Uncle Sam Economy implement real regulatory reform or will it be nothing more than repositioning the deck chairs? Bair is adamant in defending her positions and not kowtowing to Geithner or other regulators on this front. While Geithner and the Obama administration have sent clear signals that the Fed will become even more powerful in the regulatory reform process, Sheila Bair . . .

worried aloud about the current trend toward making the Federal Reserve banking’s regulator-in-chief. She cautioned the Fed could find itself making “severe trade-offs” between the needs of consumers, businesses and the economy as a whole if pressed into service as America’s top banking regulator.

Do we have anybody in the public or private sector willing to take on the titans on Wall Street along with the Federal Reserve? Go Sheila go!!  Bair has the gravitas and perspective to take on the Fed. She asserts:

“No other developed country gives their central bank the kind of power we give our central bank,” Bair said.

“[The Fed] had authority to prescribe across-the-board lending standards for mortgages, and a lot of people said they should do that and they just didn’t,” Bair says as an example of where too many roles led to lapses. “Where does the consumer role go on your priority list? At some point it just doesn’t get done. It just doesn’t get the focus it should.”

I raised this same failure on the part of the Fed the other day in writing The All Powerful Federal Reserve.

Bair proposes a council of regulators with real teeth to regulate the financial industry and protect consumers. Is she positioning herself to gain greater political leverage in the process? Is she looking for her next role within this power structure? Is she consumed by the “Washington Way” and looking to collect some of those large lobbying dollars bestowed by Wall Street? No, Ms. Bair has larger, greater aspirations and stronger principles. She looks forward and offers:

“In two years I will be gone. My term is up and my primary objective is to serve out my term with my reputation intact and then get back to my family life.”

What a breath of fresh air.

Please join me this evening as I discuss the regulatory framework on Wall Street with noted attorney and highly acclaimed regulatory advocate Bill Singer on No Quarter Radio’s Sense on Cents with Larry Doyle.


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