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Posts Tagged ‘Sheila Bair’

I’ll Gladly Pay You Tuesday…

Posted by Larry Doyle on December 3rd, 2009 9:26 AM |

Postponing losses in hopes that one can trade out of them is a game very rarely won. In similar fashion, not acknowledging losses in hopes that the situation improves and the loss is mitigated is also a recipe for disaster. All one needs to do is look eastward to Japan to realize that. Ultimately, a loss not only must be realized, but paid. “I’ll gladly pay you Tuesday for a hamburger today …” may be cute in cartoons, but in the real world that approach never works. That said, this ‘delay to pay’ is the exact approach being utilized by Uncle Sam and, in large measure, by private industry.

Bloomberg’s Jonathan Weil once again distinguishes himself and provides great insight on this dynamic in writing, Fudging Losses is Easy When the FDIC Does It Too:

No wonder so many banks are delaying their losses. The Federal Deposit Insurance Corp. keeps showing them how, by doing the same thing with its own.

Last week the FDIC, led by Chairman Sheila Bair since 2006, said its insurance fund’s liabilities exceeded assets by $8.2 billion as of Sept. 30. That marked the first time since 1992 that the industry-financed fund had shown a deficit. There’s plenty of reason to believe its financial health is much worse.

How much worse? (more…)

Sheila Bair Trumps Tim Geithner

Posted by Larry Doyle on October 29th, 2009 9:52 AM |

FDIC Head Sheila Bair

“Too big to fail.”

Do you think the American public is sufficiently sickened by that phrase? No doubt.

How will our ‘wizards in Washington’ handle this monstrous issue going forward? Is there any doubt that the industry itself should be held accountable to provide the necessary capital to unwind firms deemed ‘too big to fail?’ Of course not. However, the execution of that policy is where the rubber meets the road and where we learn who in Washington is truly working for the American public and who is working for the financial industry. How so? Let’s navigate. (more…)

FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance

Posted by Larry Doyle on September 18th, 2009 12:27 PM |

It was only a matter of time before both the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC) would walk over to the U.S. Treasury and ask for a ‘bigger allowance.’ That time has come, despite what some officials may say. High five to MC for bringing the FHA story to my attention.

The Wall Street Journal highlights the FHA’s predicament in writing, FHA Tightens Credit Standards, Sees No Bailout:

The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.

The agency, a growing source of funds for first-time home buyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17% of FHA borrowers were at least one payment behind or in foreclosure, compared with 13% for all loans, according to the Mortgage Bankers Association.

Rising defaults mean the FHA’s reserves may sink below the 2% mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.

Please recall that FHA-insured loans require only a 3% down payment. In writing a previous blog post focused on the FHA, a well informed reader shared with us that builders will often offer rebates which effectively cover that down payment. What is the result? Homeowners purchasing properties with no money down, otherwise known as ‘no skin in the game.’ This practice was prevalent throughout the irresponsible stage of sub-prime lending. Make no mistake, plenty of this is continuing today with the support and backstop of Uncle Sam . . . all in hopes of filling that growing hole in the housing dike.

The FHA will certainly need more capital unless and until mortgage delinquencies, defaults, and foreclosures stabilize and decline. None other than Wells Fargo CEO John Stumpf shared the other day that he does not see a slowing on those fronts.

In regards to the FDIC, the insurance fund has exhausted the bulk of the initial $50 billion which it had prior to bank failures starting in 2008. The costs of these failures have far exceeded that $50 billion figure. How so? Some very large profile failures were brokered to stronger hands with FDIC support but without the FDIC having to make an initial outlay of funds.

The WSJ highlights the current dire straits of the FDIC in writing,  FDIC Mulls Borrowing from Treasury:

Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.

“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.

Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.

Individually, the FHA and FDIC stories are both significant. However, in the midst of bailouts of other institutions (large banks, Freddie and Fannie, AIG, GM, and Chrysler), the funds likely to be injected into these entities are treated as merely adding another leaf to Mom’s dining room table for Thanksgiving dinner.

Is the American public grateful for the undisciplined and greedy lending practices that have crippled the FHA and FDIC? Perhaps I should rephrase that question: are these institutions grateful for the American public putting their taxpayer dollars on the line?

LD

Wall Street Supercop

Posted by Larry Doyle on July 24th, 2009 9:55 AM |

Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!

Pardon my lighthearted manner to a truly serious issue, but certain topics just lend themselves to breaking out my Irish wit and this is one of them.

Recall that under President Obama’s initial plans to revamp the financial regulatory structure, the Federal Reserve was to be designated as the uber-regulator or Supercop for Wall Street. Well, the best laid plans do not necessarily play out that way, as the Associated Press reports SEC, FDIC Heads Want New Council to Be Supercop:

Key regulators on Thursday broke with the Obama administration, reaffirming their belief that some new powers to monitor big institutions against financial threats should go to an interagency council, not the Federal Reserve.

Some Republican lawmakers also continued to warn against endowing the Fed with new powers in an overhauled system as Congress slogs through a complex deliberation that could reshape the financial landscape in the wake of a historic crisis.

Under the administration’s financial overhaul proposal, the central bank as “systemic risk regulator” would be able to duplicate and even overrule other regulators.

But Securities and Exchange Commission Chairman Mary Schapiro and Sheila Bair, head of the Federal Deposit Insurance Corp., stressed to the Senate Banking Committee that crucial role should be played by the new stability oversight council. The body would include the Treasury Department, the Fed, and the two independent agencies headed by Bair and Schapiro.

I am not necessarily for more government bureaucracy and I hope this supercop council is not merely a layer of red tape. I would be very concerned if the Federal Reserve were designated as the sole supercop. Why? I think it would likely hinder the Fed’s ability to be viewed as totally independent. I already believe the Fed has a credibility issue on that front. Being designated as Wall Street’s supercop would only further jeopardize the Fed’s claim of  independence.

Make no mistake about it, though, the efficacy of a proposed supercop is ultimately a question of transparency and integrity. I addressed these points in writing “Future Financial Regulation: Not A Question of Sufficiency, But of Transparency and Integrity.”

I am heartened by the fact that the FDIC under Sheila Bair would be able to play a prominent role in this supercop council. I hold Ms. Bair in high regard. As the AP reports:

Bair testified that an interagency council with strong and extensive authorities “will provide for an appropriate system of checks and balances.” A council “with real teeth … would be highly effective,” Bair said. It would be “tremendous” power to invest in a sole regulator, she said.

Bair also endorsed the proposed creation under the Obama plan of a consumer finance protection agency to oversee areas such as mortgages and credit cards — an idea fiercely opposed by the financial industry.

How will this play out? Sense on Cents will be monitoring developments. Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!

LD

Related Commentary

Don’t Call the Fed Independent; June 17, 2009

Sheila “Bair”s Her Mind

Posted by Larry Doyle on June 14th, 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: (more…)

Sheila Bair and the PPIPs Tour: Cancelled

Posted by Larry Doyle on June 4th, 2009 7:56 AM |

What is going on with the PPIPs?

The Public Private Investment Program was “scheduled” to play a grand national tour in helping the banking industry cleanse itself of toxic assets. Did the “lead singer,” Sheila Bair, lose her voice? Did the “backup” in the form of the banks and investors lose their rhythm? Let’s “boogie” on over and check it out.

The FT reports, FDIC Stalls Sale of Toxic Loans:  

Details of the Treasury’s toxic asset plan are in doubt after the Federal Deposit Insurance Corporation on Wednesday said it was suspending a test run of the legacy loans programme.

Sheila Bair, chairman of the FDIC, said development of the programme – designed to encourage investors to buy toxic, or legacy, loans from banks in order to restart the flow of credit – would continue but a pilot sale of assets was on hold.

“Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system,” Ms Bair said in a statement.

Is this all that it appears to be or is there more of a smokescreen on the stage inhibiting all parties – Uncle Sam, the banks, and investors – from “giving it their all”? Let’s dive into the mosh pit.

Sense on Cents views the situation as follows:

1. Impetus for banks to liquidate toxic assets (now called legacy assets by the Obama administration) is dramatically lessened. Why? Are they now less toxic? No, anything but that. With the relaxation of the mark-to-market accounting standard, banks can now “mark to model.” As such, banks are not forced to write the asset value down. In so doing, banks are now not compelled to sell it at a price which would incentivize an investor to purchase.      

2. What about all of the equity capital raised by banks over the last few weeks after results of the Bank Stress Tests? Has that had an influence on banks need to raise capital via the PPIP?

Yes, but remember that the Bank Stress Tests only covered the largest 19 banks in our nation. These banks have been largely successful in raising new capital. That said, the toxic legacy assets remain on their books. Do not forget, though, that many small to medium sized banks and thrifts have a sizable amount of underperforming loans (residential mortgages, commercial real estate, corporate loans) on their books. These banking institutions were neither put through a “stress test” nor are they in a position to raise capital as easily as the large banks.

A successful PPIP program would have helped these institutions.

3. Hints of potential self-dealing by banks involved in the PPIP, both as seller of assets and buyer of assets, would have created a firestorm. I addressed this problem in writing, Putting “The Fix” in the PPIP.      

4. With all due respect to the lead singer, Sheila Bair, all indications are that her handler – an individual named “Uncle Sam” – can not be trusted. Potential investors have been very reluctant to get overly involved with Sam. Why? In other performances, Sam has “strip searched” individuals upon entry and also played various iterations of “bait and switch.”

As the FT reports:

Banks and investors, meanwhile, had misgivings over taking part in the PPIP amid fears the politically charged climate could prompt Congress to change rules on issues such as executive compensation for those firms that participated in the programme.

While this tour is being cancelled, don’t get overly despondent. I am sure our Summer concert series will be able to provide plenty of entertainment going forward!!

LD  

Navigating Sense on Cents

Posted by Larry Doyle on April 11th, 2009 7:29 AM |

As many people travel this weekend to be with friends and family, I would like to take an opportunity to navigate the highways and byways of links and material connected to Sense on Cents.

I hope this post will open more eyes and ears to wider avenues of information as we collectively try to make sense of the economy, markets, and world of global finance.

If I could beg your indulgence, if any of these links do not interest you but you feel they may help others, please pass them along. I thank you in advance.

With no further adieu, let’s travel around Sense on Cents . . .

Career Planning: I have always taken pleasure in providing career guidance. I provide a wealth of  Must Read articles from a variety of sources along with a Workshop for developing a game plan.

Market Data:  this page connects to real time market data from the Wall Street Journal. Every sector of the market is a mere point and click away. Stocks, bonds, currencies, commodities, economic data, international markets, historical graphs, and more…

Newsworthy: some stories have made headlines, while others are off the beaten path.  These stories come from your local papers and from posts around the world. I welcome sharing them with you.

No Quarter Radio: “Sense on Cents with Larry Doyle”  is my weekly Sunday evening radio program. I share insights and perspectives on the markets and economy while also hosting outstanding professionals from all corners of finance as my guests. All shows are archived and available as podcasts on iTunes. I also provide an audio player right here on Sense on Cents immediately after the completion of each show so that you can listen to a playback of the show right from this site.

The Reading Room is filled with a variety of books (pleasure, finance, inspirational, educational) that I have enjoyed and found impactful.

For those working their way up the learning curve (aren’t we all?), I have
Primers on the following topics:

Investing: anything you could ever possibly want defined or simplified.
Mortgage Market and Mortgage Finance
Financial Aid
Insurance
Debt Management

I also closely track a number of professional money managers, economists, and analysts. This collection of pro’s pros are my Economic All-Stars and include:

Laszlo Birinyi: outstanding equity manager and Wall Street veteran

Nouriel Roubini: highly acclaimed NYU economist

Jeff Gundlach: the highly acclaimed Chief Investment Officer of Trust Company of the West

Bob Rodriguez: along with his First Pacific Advisors colleague Tom Atteberry, named Morningstar’s 2008 Fixed Income Managers of the Year

Bill Gross: the highly acclaimed bond manager at Pacific Investment  Management Company

Greg Mankiw: widely respected Harvard Professor of Economics

John Mauldin: a true favorite of mine, this market analyst is amazingly well connected

Sheila Bair: the chair of the FDIC and, in my opinion, the preeminent regulator in the U.S. government today.

Carmen Reinhart: Professor of Economics at the University of Maryland

Thought Leaders: 22 of the finest economic minds in the world today  connected to Project Syndicate, an international association of 415 newspapers in 150 countries !!

If you are reading this post, I hope this trip has opened new avenues of interest for you. As the moderator, I actively engage readers, so please do not hesitate to ask questions and leave comments, or – as some may say –  sign the Guest Book!! Please share the site with friends, family, and colleagues.

Ultimately, I hope you enjoy coming to Sense on Cents as much as I do!

Have a blessed holiday ~

LD

Bank Stress Tests: Major Sham??

Posted by Larry Doyle on April 8th, 2009 11:35 AM |

failing-grade1Why is it urban school dropout rates are 50%? Well, I am sure there would be as many reasons for that horrendous statistic as there are dropouts. The fact of the matter is, though, the state of urban education has promoted a phenomena known as “social promotion.” If students aren’t qualified to do the work, testing has been gamed, standards have been lowered, and corners have been cut. As a result, urban education at this stage is an unmitigated disaster. What does this have to do with the current state of our economy and the world of finance? I am glad you asked.

If banks, much like students, are not required to pass rigorous testing, then “social promotion” in finance will produce results not unlike those in education–underperformance and ultimately an inability to compete on the global stage.

Against that backdrop, I personally looked forward to the results of the Bank Stress Tests. Let’s finally get an honest assessment of the “students.” Let’s see how they have performed and let’s project to see how they will perform!!

As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically. (more…)

Bullish on Ms. Bair!!

Posted by Larry Doyle on March 28th, 2009 3:30 PM |

The Bull and the "Bair"

The Bull and the "Bair"

Is there anything worse than engaging a dishonest broker? Regrettably, our financial landscape (banking, investing, real estate, insurance, et al) is littered with shady brokers. How and why these people remain in business is another topic for another day. This piece is to highlight the integrity of an honest broker, Sheila Bair, and her involvement in the PPIP (Public-Private Investment Program) designed to handle toxic assets, both securities and loans.

For those unaware of the specifics of the PPIP, the toxic securitized assets will be sold via a facility known as the TALF (Term Asset Backed Lending Facility) and via partnerships with 5 large private money managers.

Toxic loans (unsecuritized) are the much more difficult part of the program. The bulk of these loans are likely still held on banks’ books at origination cost (not yet marked down) and pose a much greater disparity in perceived value and challenge in reaching agreeable prices. (more…)

How Long Can You Tread Water?

Posted by Larry Doyle on March 26th, 2009 11:10 AM |

The other day, I provided a cursory overview of the details embedded in the recently proposed Public-Private Investment Partnership, Will Banks Truly Sell these Toxic Assets?

The main point I tried to highlight in that piece was the need for true price discovery for these toxic assets. A loyal reader provided tremendous insight in highlighting that the PPIP needs to assure that sellers are truly at arm’s length from buyers to insure that the price discovery process is real and fair.

There are potential concerns with this price discovery process highlighted in my piece Send in the Clown. Are the bank portfolios, located within the largest banks needing to sell toxic assets, attempting to prop the market higher? (more…)






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