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Sheila Bair’s Final ‘Sense on Cents’

Posted by Larry Doyle on June 9, 2011 1:37 PM |

Sheila Bair Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), pauses as she speaks during a news briefing May 27, 2009 in Washington, DC. Bair announced the bank and thrift industry turned a profit in the first quarter of 2009.  (Photo by Alex Wong/Getty Images) *** Local Caption *** Sheila Bair

In one corner, we have Jamie Dimon who on behalf of his shareholders would seemingly like to maintain as much of the status quo for the powers that remain in the Wall Street oligopoly.

In another corner, we have Barack Obama grasping at straws that might breathe some lifeblood into the economy and support his prospects for reelection.

Who occupies the center of the ring and is neither compromised by the large money interests on Wall Street nor the pursuit of perpetuating a political career in Washington?

Sheila Bair.

The soon-to-retire head of the FDIC–she steps down in early July–provided perhaps her final dose of ‘sense on cents’ this morning. What did she have to say? 

Ms. Bair spoke earlier today at the Council on Foreign Relations. The Wall Street Journal provides a summary overview of Ms. Bair’s ‘sense on cents’ in writing, FDIC’s Bair: New Capital Rules Won’t Hurt Lending. I have not always agreed with every position that Ms. Bair has held but I have always believed her to be a truly honest broker and an individual who has our nation’s best interests at heart. What pearls of wisdom did Ms. Bair share?

1. a higher regulatory capital requirement for banks won’t hold back lending

2. urged President Barack Obama to appoint a head for the consumer protection agency soon.

3. the banking industry—and the economy—need a more sweeping effort to resolve the mortgage foreclosure mess that has engulfed the housing market. “The market needs to clear” distressed properties, but the foreclosure process has become “dysfunctional,” she said. “We are doing incremental things” to resolve the issue. “We need to do something dramatic” that would simplify the modification process for delinquent home owners, she said. She added, “I am quite angry at the servicers” who collect mortgage payments and handle foreclosures.

4. It was leverage, not high capital requirements, that killed credit availability and the problem now is borrower demand, not capital.

5. said that 10% capital, which bankers consider high, still allows banks to generate a “nice” return.

6. has repeatedly criticized big banks for their role in the financial meltdown and has been more of a proponent of community banks, said big banks without a plan for how they can be dismantled in a crisis should keep one percentage point more capital.

7. said she believes new rules for banks to keep a 5% stake in securitized mortgage pools are sufficient.

8. said the government needs to keep some role in the mortgage market to protect low-income households.

9. said the FDIC is working on changing its internal rating system for banks to make the ratings more forward looking.

Sheila Bair has consistently been willing to take on both political parties and all the participants enmeshed in the Wall Street-Washington incest. Our nation will miss her pursuit of the truth, transparency, and integrity.

With her comments today, she further solidifies her position in the Sense on Cents Hall of Fame. Others on Wall Street and in Washington would be wise to follow her lead.

Sheila Bair ‘gets it.’

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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