FDIC vs. the Banksters: “Regulators Feud as Banking System Overhauled”
The article in the Sunday NYT about tension between the FDIC and the OCC was a pretty sad version of reality, IMHO. What’s with Labaton and Andrews?
The piece, “Regulators Feud as Banking System Overhauled,” purports to describe the rift between the OCC and Treasury, who side with the big banks, and the FDIC led by Sheila Bair, who attempt to follow the law and enforce some degree of discipline over the banking industry.
Unfortunately, the article gives far too much credence to Controller John Dugan and Treasury Secretary Tim Geithner, without adequately disclosing to readers of the Times just who works for whom in the political equation. Let’s go through the article and translate some of the TimesSpeak into vernacular.
The first graph of the article juxtaposes Chairman Bair imposing new fees on big banks while Dugan mouthes the line from the large Sell Side dealers that the smaller banks are really to blame for the crisis. The Times biz editors fail to mention (or maybe still don’t know) that the PR line about the little banks being “worse” than the biggies was part of the Sell Side chum tossed into the water over a month ago. That line of nonsense was dutifully picked up by the rest of the Big Media, amplifying the small-banks-are-worse propaganda and enabling the Sell Side dealers to put away tens of billions in new bank equity. Ka-ching!
It’s all part of the spin, right Stephen? Come on.
You see, the little banks, while looking really nasty at the end of Q1 2009, are still in far better shape than the zombies. Only with hundreds of billions in subsidies could the Sell Side hawk the new equity needed to help GS, JPM et al escape the TARP long enough to pay year-end bonuses. Meanwhile, the smaller banks have been paying as much as 3x per $1 of assets to support the FDIC deposit insurance fund vs the money center banks. Click here to see the results from our Q1 2009 Stress Index survey: “Q1 2009 Bank Ratings Update and GM, GMAC Bank Join the Zombie Dance Party.”
It all comes down to one question: do you want the blue pill or the pink pill?
Now, most readers of TBP would not know John Dugan if they saw him on the street and rightly so. Dugan is to bank regulation what Frank Raines was to the housing enterprises, a relentless champion for the large Sell Side dealers and a tireless traveler in support of the work of spreading the good news of financial innovation to other markets around the world. Dugan spent so much time on the road during the heyday of the financial bubble on Wall Street that he could not possibly have known what was going on within the national banks that are his primary responsibility. He can plead incompetence.
Dugan is a complete tool of the large zombie banks, IMHO, a career “public servant” who is entirely captive of the industry he pretends to regulate. Thus his forceful protestations about Bair’s tough line with Citigroup and other insolvent money center banks. Along with Secretary Tim Geithner, Dugan takes his marching orders from GS, JPM and the other major banks, thus the continued effort to try and force Bair out at FDIC. Unfortunately, the Times is so busy carrying the water for Master Tim that they neglect to provide you with the adequate coloration to full appreciate who is serving the public interest among the regulators.
Here’s the key lines at the end of the Times article that somebody in Geithner Land fed to Labaton and Andrews:
“But at the Treasury and the Federal Reserve, Ms. Bair is viewed as someone who pushes her and her agency’s interests rather than someone who finds common ground with other policy makers. Besides Mr. Dugan, she has antagonized many other leaders in Washington.
Officials at the Federal Reserve and the comptroller’s office said she exasperated them last fall when she balked at allowing Citigroup to take over Wachovia, a major bank that was about to collapse.
In bruising negotiations that lasted until 4 a.m., Ms. Bair squared off against Mr. Bernanke, Mr. Dugan and the Treasury secretary at the time, Henry M. Paulson Jr. The stand-off left many officials, who thought the broader financial crisis had given them no alternative but to finance the deal, fuming.”
Of course Paulson, Bernanke et al were “fuming” at Sheila Bair. The FDIC Chairman was doing her job while the rest of these spineless weasels, these duplicitous, traitorous villains were selling out the taxpayer to subsidize the bond holders of the large banks — the clients of PIMCO, BlackRock and the rest of the Buy Side. Following Paulson’s lead, Dugan and Geithner are simply representing their clients and future employers on the Sell Side.
Meanwhile, Sheila Bair and her colleagues at the FDIC are the only regulatory agency in Washington that is still trying to obey the law. The Fed and OCC, on the other hand, have bought into the Paulson/Geithner/Bernanke scheme to subsidize the large zombie banks — anddo so without authority from the Congress.
Bair wanted then and appears to still want today to follow the law and pursue a least cost solution to resolving C and other zombie banks. That means management changes, forced sales of toxic assets and most likely a conversion of debt into equity at C, BAC and maybe JPM and WFC.
When the nonsensical economic policy being followed by President Obama — namely “continuity and confidence” — turns to dust later this year, President Obama will be lucky to have Sheila Bair available to pick up the pieces. And when Bair goes to China to meet with our largest foreign creditor as the first female Secretary of the Treasury, the people in the audience will not laugh openly. See Bob Kuttner’s piece from last October: “Sheila Bair for Treasury Secretary.”
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June 14th, 2009 at 7:39 pm
Wow! Chris, why don’t you say what’s on your mind?
And so exactly how did we get to the point where knowledgeable people like you just don’t appear on the evening news.
There’s this incredibly small percentage of people dialed in to the truth, thinking if we talk amongst ourselves good things will happen. I wish.
I am so grateful for your words. And they are totally on target.
My belief is our paranoid government is listening to everything said on the web. Recent experience is 100 votes can determine a fairly large election.
It’s my hope they are listening, and it makes it past the LS/TG filter. But BO really does not want to hear the bad news/vibes in spite of his pronounced interests.
June 14th, 2009 at 7:45 pm
Here’s my rant for the year:
January: I applied for a refinance through B of A.
March: I called for a status and got a standard response that due to high volume, they do not know when they would be able to process my application.
April: They kept auto-extending my rate lock date. I called and asked for the current rate since it was their fault. No-cant-do. It’s in the fine print of my agreement.
May: I called them and said that my local savings bank had given me a lower rate and had closed the whole loan in 4 weeks. Can they withdraw my application, please?
June: I got yet another letter asking me for some missing docs. ??? I closed all of my checking/savings accts. as well. I don’t think I’ll ever return to BofA.
Here is my message to Dugan: The big banks are not just zombies. Right now, they are incompetent zombies as well.
June 14th, 2009 at 7:56 pm
If Reagan’s no-money-down mortgages’re the sort of financial innovation you don’t approve of… well you can cancel my subscription to this blog immediately… if not sooner.
— Pasty Guy w/ Anger
June 14th, 2009 at 7:56 pm
The small banks paying 3x as much per $ asset as the large is absurd and a testament to who is in charge. The large banks complaining about that being unfair, just leaves you speachless.
June 14th, 2009 at 8:13 pm
[...] Read more: The FDIC vs. the Banksters: “Regulators Feud as Banking System … [...]
June 14th, 2009 at 8:17 pm
@VennData: If that’s all you have to say, then I suppose you won’t be missed on this blog all that much. And I think this blog is about indie not emo. Nice flip of terms. So have a good life.
@DeDude: Totally correct. So how angry do we have to get to completely and totally frustrate ourselves?
I suppose there’s this infinitely small possibility that we can turn BO’s internet on himself, now that the truth comes out.
Ironic justice?
June 14th, 2009 at 8:42 pm
@DMR
OMG my brother…ok I’m sure everyone knows what you posted but I’ll paste it anyway…
January: I applied for a refinance through B of A.
March: I called for a status and got a standard response that due to high volume, they do not know when they would be able to process my application.
April: They kept auto-extending my rate lock date. I called and asked for the current rate since it was their fault. No-cant-do. It’s in the fine print of my agreement.
May: I called them and said that my local savings bank had given me a lower rate and had closed the whole loan in 4 weeks. Can they withdraw my application, please?
June: I got yet another letter asking me for some missing docs. ??? I closed all of my checking/savings accts. as well. I don’t think I’ll ever return to BofA.
—
SAME WITH ME MY FRIEND…
Back during the panic in the fall of ’08 I was basically playing the same game…I tossed down 3 large CASH on a distressed farm in WVA that was easily market valued at a half a million…(a 40% discount)…
It didn’t really bug me at the time because I wasn’t interested in real estate values so much as the VALUE OF REAL ESTATE (‘farmable’ as the case may be at almost a 50% discount)…& taxes are mild…
But something in the back of my head clicked and said “These MF’s are going to take rates down because they’re weenies and can’t stand the idea of American VOTERS suffering”…So I just strolled along with my cash investment and waited for a cherry rate to pop up…
I don’t want to get into detail, but I’ll re-iterate what you posted…Alot of fluff from Summers & Geithner (pawns of OBAMA) about SAVING the housing market…
It’s CRAP…
I have an 800+ credit rating and have NEVER been able to finance anything of interest to me (Even though I have 100% equity in my property & am FREE from debt)…
The TARP?…banks?…ALL they are doing, my friends, is taking taxpayer $$ and bidding up oil and equity prices…
So EFF it…that’s what I’ve been doing with the spare cash too…(I EFFING HATE IT because it’s not my nature)…
I don’t know how it will all play out in the end…Obama simply MUST be more stupid than even Bush or Clinton to place his trust in someone like Larry Summers…
From a “market” standpoint, ANYTHING COULD HAPPEN because the stupidity of $$ chasing irrational decisions (and/or ‘gaming’ them otherwise) could lead to the likes of Franklin411 to lose a half dozen incarnations worth of stupidity…
Ladies & Gents…I don’t effing care…I’d just point you in one direction and leave you at that…READ DMR’S POST…I don’t think he’s making it up (& I’m seconding his claims)…
Assuming anyone who reads TBP understands how to make FINANCIAL DECISIONS based on such anecdotes…ACT ACCORDINGLY…
June 14th, 2009 at 9:12 pm
This reminds one of the article about Brooksley Born(sp) that was linked to on this site a while back. Where it told how Bob Rubin wanted to back her down and she would not, They legislated her powers away. The two main men in that, they testified in front of the subcommitee, were Al (the fool) Greenspan & Larry (the tool) Summers. why haven’t both of them been exiled.
June 14th, 2009 at 9:28 pm
@markd: Good point. Good question.
So, where’s the answer? I don’t guess it’s on BO’s important question list.
So, the question remains. Actually it’s a twofold question.
Why would anyone vote for BO again?
What are our choices?
He’s pretty self-confident he’s our savior. Too bad he is so full of himself and out of touch. Happens regularly. Those that would rather talk than listen, except for their IMPORTANT IVY LEAGUE BANKING FRIENDS. But the sheeple will most likely re-elect him. And then the bombs will go off.
June 14th, 2009 at 9:34 pm
To comment about Brooksley Born, I think she will get her way on OTC derivatives. See the news item on the PRMIA conference on CDS last week:
http://www.prmia.org/Chapter_Pages/WashingtonDC/
The comments by Dr, Greenberger of U of MD Law School, who worked for Commissioner Born, were very interesting.
Chris
June 14th, 2009 at 9:53 pm
A standing ovation for MS Bair!! I’ve worked for many governmental agencies in my lifetime and have always championed what was right over what was wrong. It cost me a few jobs, as they would find a way to get rid of me or out of frustration I’d just quit. However, I did make a small fortune suing their asses in court. There is no better feeling then being able to look at yourself in the mirror and know that you’ve tried to do the right thing even if it has cost you by exposing the wrong thing. The government is full of ass clowns like this who are only interested in what they can do for themselves ($$). Their is little if any integrity in public office anymore. And how people can put their money into a market which is woefully manipulated is beyond my comprehension. Trust and believe in yourself, first and foremost. Everyone else needs to earn your trust before you can believe in them. Very little appears to be as it is…
June 14th, 2009 at 10:20 pm
@ DMR, there are competent zombie banks?
June 14th, 2009 at 10:24 pm
I was watching Kenneth Lewis’s testimony rerun on C-span on Saturday, and something just popped in my mind; most representatives were homing in on the “threat” factor, as to whereas Hank and Ben actually threatened to remove the board, or was it perceived as such etc.. blah blah yada yada….
Smoke screen I say;
What apparently they all missed, on purpose or not, is that the “regulators” loaned taxpayer’s money to “institutions” deemed “to-big-to-fail”……in order for them to absorb other institutions, and become even bigger. It is beyond stupid.
I can’t wait for the crap to really hit the fan. And I’m watching the 140 some billions bearer bond story very closely. If you don’t you should too http://www.dailykos.com/storyonly/2009/6/13/742119/-Who-Was-Smuggling-$134billion-in-US-Bonds-to-Switzerland
What a freakin mess…..
June 14th, 2009 at 10:30 pm
chris whalen-
great post
June 15th, 2009 at 12:01 am
Chris,
as ahab said. as usual, you’re writing is clear, concise, and coherent.
as an aside, after the first couple of lines, I had to (re-)check the byline.. a, silent: O, that makes more sense~ was heard..
Keep nocking those Arrows of Truth, as you know, There be Bandits in these parts..
June 15th, 2009 at 12:56 am
Knowing how hard it is to stand up to the overwhelming political pressures (and probably downright threats in back rooms) in the halls of D.C., I have to come to the conclusion that Ms. Bair is made of some very stern stuff and is to be greatly admired. Bully for her!!!
I just hope that she doesn’t get knifed in the back eventually. She must also be as pure as the wind driven snow or else the jackals would have waged a smear campaign to be rid of her by now. Interesting lady indeed. We can only hope that she will win out in these battles for the taxpayer vs. the banksters.
June 15th, 2009 at 1:25 am
@Pat G: Thanks for sharing.
I suppose there’s still hope.
June 15th, 2009 at 2:00 am
I’ve always felt that Sheila is fighting against the tide, but have always been skeptical of her dedication to actual change. This article provides some insight into how rough a fight she is facing (assuming she is).
Hopefully she’s up to the task, it seems like a damn rough one. I can’t imagine being in a room with all those high-level sales-guys, and being repeatedly berated for what they say are “dangerous policies”, when her goal is actually to protect the American taxpayer. Ugh.
June 15th, 2009 at 7:27 am
Just to clarify, the reason that the large banks pay less for deposit insurance is that more than 50% of their liabilities tend to be bonds, not deposits. However, the FDIC has just levied the new premium based on total assets.
June 15th, 2009 at 7:49 am
ChrisW saw ya on PBS News Hour last week. Good job attempting the explain .. heady stuff for people out of the banking loop .. like me. Couldn’t tell if it was new tape or old .. this thing has been going in circles awhile.
The 134B bearer bonds is a juicy story. “Hans – did ya have to nuke the whole building?”. Why the secrecy passing over customs? taxes / press / … and for who? Japan / China / Roman Cath Church … and I’d like to know what the ratio of exchange is going at? 1:1 / 1:2 / 1:3
June 15th, 2009 at 9:26 am
Chris, You are 110% on target! Thanks for posting this.
I would add that the two most important actions taken during the crisis to honestly deal with TBTF (too big to fail or, as Ed Kane correctly prefers, “too big to resolve”) were not taken by the Fed, not by Treasury and not by the OCC. They were smart, discreet actions that have not been fully considered but were taken by… you guessed it, FDIC Chair Bair.
The 2 most major risks generally considered to justify a consideration of an institution as TBTF are deposit runs and counterparty risks.
The first was the FDIC’s emergency increase in the insurance limit to $250,000 on interest bearing accounts and an unlimited dollar value for non-interest bearing accounts – this sends a strong message to retail and business customers – don’t panic and pull your deposits. It ameliorates any rational basis for bank-runs.
The second was, to my mind, the most important piece of prudential rule-making in a decade. The public and markets have ignored it… The rule ( http://www.fdic.gov/news/board/08DEC15rule3.pdf ) requires institutions that are rated a 4 or 5 on CAMELS or are over $10bb in assets and rated a 3 to, upon written request of the FDIC, provide the FDIC will all relevant deal documentation regarding all QFC’s. This includes information about the collateralization levels relative to exposures, the contact info for both the party and counterparty teams…. This rule was quietly opposed by Dugan and other seemingly “captured regulators” who argued it was too onerous.
Too onerous my butt! It allows the FDIC to begin to consider and even possibly design the resolutions of large and complex institutions. Appropriately collateralized counterparties’ exposures could be placed in a “good bank” and under-collateralized in a “bad bank”. The rule became effective Jan 2009. We can assume that many troubled institutions are probably already being required to comply and, given the lack of lobbyist outcry, that they have found they are able to.
Unlike the regulators who seek to protect sleestacks, Ms. Bair has proven herself a capable and considered public servant. Unlike those who do the bidding of the banks that own the NY Fed, she should be given far more public support.
LIke our President, Ms. Bair is working toward a day where we can institute policies that recognize the answer to “too big to fail” is not to be ok in accepting those institutions as a special and protected species but, rather, that it means they are too big. Perhaps assessing the costs of oversight proportionally to size and risk would create enough dis-incentives that some of these institutions would become “small enough not to worry about”.
Thanks again for the post.
June 15th, 2009 at 10:29 am
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June 15th, 2009 at 4:26 pm
Chris; thanks for the info. Until we get beyond the “to big to fall” concept the only fair thing is to base deposit insurance premiums on all assets. Actually a special extremely high premium should be payed by any bank that cannot prove that it can be resolved with minimal consequences, and that it, therefore, is NOT to big to fall.
If the premium based on all liabilities drive institutions to separate their bond based and deposit based activities into two different companies, that would as far as I can see only be good.
June 16th, 2009 at 1:30 am
Chris, good of you to structure the piece around a newspaper article and unpack the assumptions. Also it was great to hear you with Tom Keene today.
http://media.bloomberg.com/bb/avfile/News/Surveillance/vhJd8DQu17Eg.mp3
CW: “The FDIC Chairman was doing her job while the rest of [the regulators of capital markets which underpin the world's primary reserve currency] these spineless weasels, these duplicitous, traitorous villains were selling out the taxpayer to subsidize the bond holders of the large banks — the clients of PIMCO, BlackRock and the rest of the Buy Side.”
I don’t know of anyone else who is calling much attention to this issue: Bondholders v Taxpayers. The knee-jerk is bonds are held by pension funds (PBGC) and Big Important Foreign Institutions (you really don’t want to know how big or important — trust us). More please.