Sheila Bair on Political Capital with Al Hunt

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Category: Bailouts, Credit, Regulation, Video

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3 Responses to “FDIC’s Bair on U.S. Banks, Executives: Political Capital”

  1. [...] « Faith-Based Economics FDIC’s Bair on U.S. Banks, Executives: Political Capital [...]

  2. FromLori says:

    http://www.forbes.com/2009/05/15/sec-insider-trading-business-wall-street-sec.html

    Top Senate Democrat: bankers “own” the U.S. Congress
    Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” The blunt acknowledgment that the same banks that caused the financial crisis “own” the U.S. Congress — according to one of that institution’s most powerful members — demonstrates just how extreme this institutional corruption is.

    http://www.salon.com/opinion/greenwald/2009/04/30/ownership/

    They own the congress and the resident I would not expect anything to happen!

  3. Mikey says:

    OH MY GOD!!! Al Hunt swallowed Sheila Bair’s response HOOK, LINE & SINKER! The reality is that Timothy Geithner made the same threat on replacing bank CEOs before the announcement of the results of his stress test. What is really going on is a KABUKI PLAY. Let me explain.

    Both JPMorgan Chase and CitiGroup have said that they do NOT intend to participate in the Private-Public Investment Partnership (PPIP), but FDIC Chairman Bair is saying, oh no, despite your protestations you HAVE TO PARTICIPATE or else I WILL FIRE YOU!

    You know what? This is the exact empty threat that Timothy Geithner made a few months ago. [laugh out loud] OF COURSE JPMorgan Chase & CitiGroup are going to participate!!! Chairman Bair is just giving them political cover.

    Footnote 7 on page 8 of the Fed’s “Supervisory Capital Assessment Program: Overview of Results” (May 7, 2009) disclosed that Geithner’s stress test was to the end of 2010. Peaking in summer 2011 there will be a pay-option ARM reset wave which will peak in summer 2011, which assuming a one year delay will lead to a much-larger-than-subprime default wave in summer 2012 [1]. Something tells me that under PPIP, banks such as JPMorgan Chase & CitiGroup will dump their currently performing (and thus high priced) pay-option ARMs and RMBS & CDO derivatives into the FDIC insurance fund under PPIP.

    My concern is that FDIC Chairman Bair is being reckless by abusing the FDIC insurance fund. Specifically, I think that the PPIP is really a scam whereby the FDIC insurance fund will be used as a *toxic waste dump* for banks to dispose of their still-performing (thus high priced)-but-inevitably-to-be-toxic assets. Interestingly, it appears that the Treasury Department will NOT be contributing any equity capital to PPIP investments [2], which would insulate it from direct Congressional (and taxpayer) outrage should the toxic assets be written off. Instead bank depositors–including retirees who have savings accounts–will get indirectly hosed. I don’t know about you but this “lemon socialism” of socializing the losses is an ABUSE of the FDIC.

    For example, the Senate recently voted to give the FDIC a fresh $500 billion credit line through the end of next year, and a permanent increase from the current $30 billion to $100 billion [3]. Doing the math, to replenish a $100 billion FDIC loss, 100 million deposit accounts (including retirees) would be surcharged $10 for 100 months. All this to protect unsecured bank creditors (and derivative counterparties) when under the Fed’s 10% reserve ratio a $100 billion bank capitalization could create $1 trillion in FRESH lending capacity OVERNIGHT (i.e., like Greenspan’s philosophy of not regulating a bubble but letting the Fed clean up the mess afterward, let’s purge the system from its sins with all its instability and then have the government recapitalize and reboot it to restore stability with fresh start)!!!

    Folks, if you think that I am angry check out Associate Professor of Economics and Law at the University of Missouri-Kansas City and former bank regulator & counsel to the Federal Home Loan Bank Board during the S&L crisis William Black who called PPIP the “greatest boondoggle in the history of the world” [4]. Barry, if Chairman Bair is willing to ABUSE the FDIC insurance fund as a toxic waste dump for toxic assets, I hope that you will put her and her troops (read, their integrity & self respect) on notice that their reputation for the history books is now on the line.

    Finally, in the spirit of intellectual honesty and President Obama’s promise of openness and full disclosure, I hope you demand (and sensitize Elizabeth Warren’s Congressional Oversight Panel and TARP Inspector General Neil Barofsky) that Chairman Bair disclose all the banks’ exposures to the 2005 to 2007 vintages whole loans and their asset-backed & CDO securitizations (i.e., who has what and how much)–which after Geithner’s stress test should be at Bair’s fingertips. Specifically I would like to know if in the 19 banks that had been stress tested counted on dumping their toxic assets into PPIP and the legacy TALF programs. Once again, I think that Chairman Bair is “playing ball” to keep herself in power and plans to use the FDIC insurance fund as a toxic waste dump for toxic assets. I hate to be cynical but please convince me otherwise.

    “Sunlight is the best disinfectant.”
    – Louis Brandeis

    [1] Gopalm, Prashant, “Good News: Option ARM Resets Delayed,” Business Week, April 16, 2009 (see chart for reset schedule). Also “A Second Mortgage Disaster On The Horizon? New Wave Of Mortgage Rate Adjustments Could Force More Homeowners To Default,” CBS 60 Minutes [video], December 14, 2008.
    [2] Christie, Rebecca, “FDIC May Let Investors Buy Toxic Assets Without Treasury Stake,” Bloomberg, April 30, 2009.
    [3] Rucker, Patrick, “US Senate expands relief for homeowners, banks,” Reuters. May 6, 2009.
    [4] “The Greatest Boondoggle in History: Banks Buoyed at Taxpayers’ Expense.” Yahoo! Finance Tech Ticker, May 8, 2009 [http://finance.yahoo.com/tech-ticker/article/244222/%22The-Greatest-Boondoggle-in-History%22-Banks-Buoyed-at-Taxpayers%27-Expense?].

    cc: Al Hunt
    FDIC Chairman Sheila Bair
    Congressional Oversight Panel Elizabeth Warren
    TARP Inspector General Neil Barofsky)