“The oversight council described in the proposal currently lacks sufficient authority to effectively address systemic risks.”

-Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation

>

In the regulatory smackdown between Treasury, and the FDIC, my vote for the saner plan is with the FDIC. Treasury has done a horrific job in overseeing banks, first with Paulson in charge, now with Geithner, who previosuly did a terrible job overseeing banks as President of the NY Fed.

“Senior regulators and some lawmakers clashed once again with the Obama administration on Thursday, finding fault with central elements of the White House’s latest plan to unwind large financial companies when their troubles imperil the financial system.

Describing the details of the legislation to the House Financial Services Committee, Treasury Secretary Timothy F. Geithner emphasized that the plan would give officials the tools to more tightly supervise the largest financial companies. The government would also have the authority to order companies to shed risky assets or limit trading activities if they posed a threat to the companies’ stability.

But after he completed his testimony, significant parts of the plan were challenged by Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation. She raised numerous objections about the structure of a proposed council of regulators, and said that it would fall short of its goal of protecting the system from the shock of a large failure.”

My views are pretty straight forward:

• Federal Reserve should set monetary policy, not regulate banks.(They’ve demonstrated they are incompetent at the latter)

• Treasury should over see taxing and spending policies, executing that via IRS, Mint, etc.

• The FDIC, the entity in charge of insuring the banks deposits, should make sure these banks don’t blow themselves up.

See, regulation is easy — if you keep it simple and focused!


>

Source:
F.D.I.C. Chief Criticizes Reform Plan
STEPHEN LABATON
NYT, October 29, 2009

http://www.nytimes.com/2009/10/30/business/30regulate.html

Category: Bailouts, Credit, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Geithner vs Bair”

  1. VennData says:

    The idea the “…Geithner from the NY Fed…” defines Treasury now is giving much too much credit/blame to one man who’s changed jobs in the last eight of nine months. The New York Fed is a big institution, so is the Treasury, none of them are one man (or woman.)

    Recall that we were in a depression last March; now we’re not. The future is not set, just as it was not set then. But plenty of people told you that we were heading to a pro-longed Great Depression II and they were wrong.

    Congrats Tim Geithner.

  2. bsneath says:

    BR – Your plan would never be accepted. It is too logical. : >}

    Sheila Bair is one of a “good guys”. Like Volker, she is a true public servant, which is why she keeps upsetting the apple cart in Washington.

  3. PithyDog says:

    BR writes:

    See, regulation is easy — if you keep it simple and focused!

    You know it’s complicated by design.

    I expect nothing positive from a law breaking tax cheat. (oxymoron)

    Ms. Bair, thank you . It must be lonely in your corner of the ring…

  4. danm says:

    The last 3 posts demonstrate how hard it is to regulate. No one sees eye to eye and no one likes or trusts the same people.

  5. bsneath says:

    I know I am cynical by nature, but….

    1) Axlerod laments on television that “all we have is moral suasion” with respect to investment banks and their compensation decisions,

    2) Feinberg, the Pay Czar says he should not have authority over the compensation policies of banks who have paid back their TARP funds (even though their profits have directly benefited from government funding during a time of great national crisis),

    3) Geithner’s group comes up with TBTF guidelines that do not require funds to be set aside for future emergencies, thereby providing more bonus money in the near term and pretty much guaranteeing that bailouts will again be necessary because the banks will once again be “too broke to pay” .

    Doesn’t it appear that the current administration is taking its marching orders from Blankfein, Damon et al?

    Doesn’t one get the impression that their actions are disingenuous and are designed to give appearances of discipline and regulatory control while in fact permitting the status quo to “party on”?

    Do not these recent actions only confirm our fears that Wall Street is really in control of our government?

    Aren’t we beginning to realize that Obama may not be the Statesman that he portrayed on the campaign trail, but rather is just another seedy politician who is lacking the character and ethical standards needed to effectively govern this nation?

    (There is still time for Obama to change his approach and for the later observation to be wrong, but I am getting less and less hopeful as time goes on.)

  6. Marcus Aurelius says:

    BR says: “See, regulation is easy — if you keep it simple and focused!”
    ____________

    Regulation don’t amount to jack if there’s no enforcement. We already have plenty o’ regulations, and plenty of blatant violation of those regulations, yet none of the perps has been indicted, or gone to prison, or lost a penny.

  7. VennData says:

    Canada, China, Japan, Germany, France… the entire rest of the world have a few, large universal banks.

    “Breaking up” our big banks is stupid if they don’t, won’t, and shouldn’t. The problem wasn’t that our banks are too big, the problem was the Bush let them leverage up at 40 to 1. That’s it.

    Now, since we’re not going to lever up to 40 to 1 – until the next “ideological” loons con a hand full of Amercan swing voters and no laws now will prevent that anyway – you’re pushing in the wrong direction with all this “too big to fail” nonsense.

    Furthermore, there wouldn’t be any of this sturm und drang over the debt and deficit if Bush et al hadn’t taken the zero deficit of Clinton and turned it into a trillion dollar structural deficit (plus taking all that money and blowing it on non-productive McMansions, contemporary art, and Wal-Mart tchotchkes) and leaving us with ten trillion dollar debt. Recall we’ve been on a Obama budget for less than a month.

    What needs to happen next is a long term plan to fix the tax take up to the normal 20% of GDP from the current Bush-structural 14%. Drop “too big to fail,” that’s not the problem.

    Blaming Geithner, Paulson, Obama is nonsense. You should support them in fixing the problem now that the essential Keynsian pump priming has saved (all those nations above) and the US from averting the depression you all said was coming.

  8. torrie-amos says:

    lol, I was going to post the same thing, it is enforcement. Big money, Big Lawyers, Big Lobbyists vs. government who change managers every 3 years so you can get a higher GS grade………….it is always a game of who can outlast who………..government always folds because the incentive is low to go the distance……….no one wants the headaches or problems, there is always another case that is easier to get a win on because they infact have no money to fight it……….thus the score card is always positive and you get your raise, keep your job, and all things run smoothely, until

  9. torrie-amos says:

    the big boys are still levered up, they all applied for and were granted extensions, now that the economy is on firm footing, do you really think they will not ask for another extension and have it granted?

  10. danm says:

    now that the economy is on firm footing
    ———-
    Is it?

    I see banks with ever growing non-performing loans. They were, still are and will be an even more painful thorn on the government’s side a year from now.

    Now that things *look* good, I guess government will cut stimulus.

    Watch out in a year.

  11. danm says:

    That is exactly why markets rally in a bear market.

    Government throws in all its dry gun powder and the market parties.

    So ponctual.

  12. bsneath says:

    VennData Says:What needs to happen next is a long term plan to fix the tax take up to the normal 20% of GDP from the current Bush-structural 14%. Drop “too big to fail,” that’s not the problem.

    VD – Think it through. What do you suppose will happen to the economy once an additional 6% of income is removed through taxation? Add a multiplier effect to this and we could ratchet down another 10% to 15% in real economic activity (aka jobs, livelihoods, food on tables). It just goes to show the seriousness of our current situation. It is not fixed by any means.

    TBTF is not the problem – 40 to 1 leverage is. Yes, 40 to 1 is the biggest contributor to the collapse, but “too big” is the contributor to the behind the scenes power and influence that allowed 40 to 1 to happen. To blame Bush alone for 40 to 1 is bullshit. First, I may be wrong, but wasn’t it allowed under Clinton with Ruben’s influence? Secondly, both parties and the banks were all a part of this scheme.

    Blame Clinton, Ruben, Greenspan, Bush, Paulson, Frank and many more. And yes, TBTF is a serious problem. Banks will once again manipulate the processes behind the scenes in the pursuit of greed. It is in their DNA. They are not a force for good. Never have been and never will be. They need to be treated for what they are.

  13. danm says:

    And I should make sure I burn as many calories as I ingest every day.

  14. hue says:

    bubbles are human nature, which we can’t regulate. elmer thought he could regulate human nature by preventing downturns. he was the maestro until he was not.

    the gov’t is in denial about its hand in the bubble, how can it even talk about regulations? even if Glass Steagal were still in tact, they would have looked away. how many times did we hear Elmer and Ben talk about no housing bubble? (actually saying the gov’t is like saying the MSM. neither is a single entity, with one man behind the curtain. there is no MSM, it’s a collection of different media with different people at the top.)

    how about those marked to fantasy derivatives still on the TBTF books. we’ll wait for them to blow up again, get angry, talk more executive bonuses again, then about regulating derivatives, i.e. fighting the last war for show. then, the next bubble will be some other new financial product. or a regulation bubble …

    Sheila Bear is marginalized like Brooksley Born.

  15. danm says:

    When we start nit-picking, I just feel we’re slowly straying away from the Big Picture.

    Currently there 2 huge cross currents:

    1. The forces to maintain status quo. All those who’ve benefitined from the 2 decade long drop in rates have beome very wealthy and powerful. They want the game to stay the same with the US on top. Since rates are at 0%, QE is a strong motivator for them.

    2. Countries that have made a lot of money out of the US consumer fest want their time in the sun. Although they benefit from exports in the short term, they realize that the US can not remain a net importer with them as their slave.

    And all these people everyone keeps on complaining about are stuck in the cross fire.

    Think of it this way. How often have you changed the direction of the team in a meeting? If your answer is not very often., then you should be less judgemental.

  16. torrie-amos says:

    when i was team leader, often, when not almost never, lol

    taking the other side, perhaps there goal is still the same, save the banks, ie, meaning worse is on it’s way and they feel saving some big ones to compete with other countries big banks is the best they can do

    what doesn’t change is profit too support debt, it just does not add up, no way no how

  17. mknowles says:

    “See, regulation is easy — if you keep it simple and focused!”
    ~~~~~~~~~~~~~~~~~~~~~~~~
    You assume that regulation is our legislators’ objective.

    I’m not so sure.

  18. jritzema says:

    Barry,

    You are ignoring the fact that the FDIC has not done a good job regulating banks either. They talk a good game but the only thing they excel at is seizing banks that they let overconcentrate on crap loan in the first place and selling that bank to a bigger bank for next to nothing. The FDIC is playing its part in creating bigger too big to fail institutions. That said the Fed is not a good regulator either. The Fed and the FDIC are great compared to the OTS though.

    And to the person that Sheila Bair is a “good guy” I would disagree. She has just used a crisis to try to increase the power of the FDIC. Typical power grab by a politician.

  19. bsneath says:

    danm Says: Yes you have nailed the big picture. I cannot agree with you however regarding criticism of those who are “stuck in the middle”.

    I recall the words of Ross Perot when he was on the board of directors and trying to change the direction of GM. He said, “Sometimes you have got to poke the elephant with a stick to make him dance.”

    The same goes for changing the direction in Washington and on Wall Street. Do you think even the minor changes currently being contemplated would have gained momentum without the likes of Tiabbi’s “vampire squid” diatribes?

    It is the awareness and understanding that there is criticism of the status quo and strong support for change that gives those with integrity more courage to speak out for what is right. It also makes everyone aware of the anger that is boiling over on main street if the right changes are not made.

    No, I think we need to keep on poking at the giant vampire squid – and all of its tentacles – until it releases its jaws from the throat of government and our economy. Just my opinion.

  20. arthur.i says:

    ” Approximately 1% of the population owns 90% of the wealth in the country. The actual number of people in control of the country is quite small. There are maybe a couple thousand people who control the reins of power (100 people in the White House, 535 Congressmen, 50 bankers, 20 people in the Federal Reserve, 9 Supreme Court justices, 100 people in power at governmental agencies, 50 media titans, 100 corporate CEOs, and maybe 200 rich influential people such as Gates, Soros and Buffett).”

    “The majority of Americans are oblivious to the Crisis that has already begun. They are distracted by their latest text message, shopping at the mall, worried about the next credit card bill, engrossed by the adventures of balloon boy, and trusting that their elected officials know what is best for them. What will blind side them is the depth and ferocity of the next stage in the Crisis.”

    “The ignored hurricane sized threats that will now morph into a dire Crisis are:

    1.Unsustainable budget deficits leading to a $25 trillion National Debt
    2.$100 trillion of unfunded future Social Security, Medicare, and Medicaid liabilities
    3.Peak oil leading to $200 a barrel oil”

    “The current Crisis era began with the housing bubble that peaked in 2005 and the subsequent collapse of the financial system in 2008. The government response to a Crisis caused by thirty years of debt accumulation by consumers has been to spectacularly increase the amount of debt in the financial system. Since consumers won’t spend and banks won’t lend, the Federal Government and the Federal Reserve have decided to spend our grandchildren’s money today to prop up a corrupt evil empire. As White House lackeys and Federal Reserve shysters parade on TV day after day assuring the American public that the crisis is over and crowing that their wisdom prevented a 2nd Great Depression, the truth is they have planted the seeds of a far worse Crisis.”

    - – James Quinn

    ( credit to Mark E Hoffer earlier response and link -

    http://www.financialsense.com/editorials/quinn/2009/1021.html )

  21. bsneath says:

    arthur.i Says: Quinn nails it. A well written piece.

    I also find it interesting the Paul Craig Roberts, a Reagan Official, makes essentially the same observations.

  22. hue says:

    i thought they’ve already saved CIT, too small to bail?

  23. bsneath says:

    arthur.i Says:

    You know, this is what really pisses me off about Obama. He is way too much enthralled with his personal ascendancy into the elite power establishment and moving way too far away from his roots.

    How many poor black, latino, indonesian, Southside Chicago workers are benefiting from this closed shop elitist club where 1% of the population owns 90% of all wealth?

    Who is going to represent the working class now that the Democratic Party has abandoned them?

  24. Mannwich says:

    They can pass all the regulations in the world but if the problem is one of CULTURE (which I think it is), this is likely all a big waste of time.

  25. arthur.i says:

    bsneath Says:

    people have been down so long it looks like up to them…

  26. I happened to read an FT.com interview with legendary real estate investor Tom Barrack, Jr., the other day. Barrack has also been impressed with FDIC’s Bair, referring to her as “one of the best ever.”

    “Tom Barrack’s Latest Investment Outlook”
    http://www.investorazzi.com/2009/10/29/tom-barrack%E2%80%99s-latest-investment-outlook-2/

  27. Greg0658 says:

    danm at 8:11 am “No one sees eye to eye” .. nailed it .. little consensus

    VennData at 8:34 am “Canada, China, Japan, Germany, France, the entire rest …… problem wasn’t that our banks are too big, the problem was the Bush let them leverage up at 40 to 1″ .. BUT if USA banks didn’t play the game like the bigdogs of the world where would we be? Better off now? Lost because we didn’t play that game? Did USA invent the game play in the 1st place? Inquiring minds want to know.

  28. torrie-amos says:

    IMHO, alot of it is disgust and apathy. When GS can go from a lion investment firm to a Zebra Bank in 3 days, and after 9-11 in one week you can be bombing Afghan and have men on the groun, and in a week you have Fema in New Orleans, and TARP in a weekend, you know factually things can happen immediately if it is so desired and deemed. One year later, no one regulation, people are there actions………………it just ain’t that damned important………………i takes months to craft a law with a hundred loop holes not a weekend, and convince well intentioned people that it is the right thing to do.

  29. Greg0658 says:

    I love you guys (& girls & botnoids) .. but thinking POTUS44 to 144 can do what we are talking about .. we are talking about an entire blood transfussion of the entire capitalism world controlled by corporatists because “America is not its people / its its Business” and expand that to Planet Earth.

    take that “little consensus”

  30. VennData says:

    China’s ICBC Passes Bank of America in Market Value

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aJwBuYPtWo0w&refer=us

    ICBC profit Climbs 19%; Lending Slows

    http://online.wsj.com/article/SB125684591967416841.html

    You don’t see China angrily screeching about shrinking their banks.

  31. Mannwich says:

    @VD: Are you insane? Since when can any citizen in China “screech” about anything without being thrown in the gulag?

  32. Mannwich says:

    And what do bankers make in China anyway? Now I know for sure you’re an insider, shilling for the biz.

  33. hue says:

    Ha, the chinese gov’t is a dictatorship, it doesn’t pretend to be a republic. remember that Uighurs business a few months ago. wait until the Chinese stock market bubble pops. we don’t have tiananmen square here because we now only protest by keyboard, except for teabaggers (had to use that word again).

  34. hue says:

    manny, dicha see my response to whether you’re real?

  35. Mannwich says:

    @hue: No I did not. What did you write?

  36. Mannwich says:

    @hue: Yeah, I just read it. You’re probably right. I don’t think I’ll be meeting Wanger for dinner any time soon but you never know. If he is indeed “for real”, I might just take him up on the offer. Could be interesting.

  37. hue says:

    the fed should go public and post quarterly earnings too. it’s good at the pump and dump.

    Manny, Wanger transformation is too good. have you regulars seen anyone else have such a fast reversal? what happened to cvienne?

  38. Mannwich says:

    @hue: Agreed. He also said a while back that he “manages other peoples’ money” for a living but more recently said he was “in retail”. I’m not yet buying it. Too many inconsistencies for my bullshit detector.

  39. hue says:

    yeah, and he said he was getting emails from people here thanking him. lol. (and i don’t read the comments daily, until recently). sounds like a college student in Minn., maybe Uncle Manny will take him out for a burger.

    i’ve attended a convention in your great city about 10 years ago, it’s so American, a rollercoaster inside a mall. but then, they have an indoor ski slope in Dubai, that’s money you can burn.

  40. this Bair v. TTT ‘discussion’ misses the Root of the Matter..

    as: “…It is imperative that the American people know what the Fed is up to, how much money it loans to banks and what types of agreements it enters into with foreign banks and governments. Just about all of this information is exempt from audit or oversight. The Fed’s actions directly affect the value of the dollar, which is coming under increasing pressure from our foreign creditors. If we do not wish to see a complete collapse of the dollar, the Fed needs to be subject to a strict audit of its actions, if not an outright abolition of its charter.

    While I would like nothing more than to see the Federal Reserve abolished, it is not absolutely necessary to do so with direct legislation.

    The Fed’s influence comes about because of its monopolization of the creation of money. If we could abolish the government monopoly on the creation of money, the Federal Reserve would be forced to clean up its act or go out of business. Economists know that monopolies lead to reduced output and higher prices, a suboptimal allocation of resources. This applies as well to the market for circulating currency as it does to markets for any other good.

    In the previous Congress I introduced legislation that would eliminate the three major barriers to competition in currency and break the Fed’s stranglehold on money.

    The first barrier: Legal tender laws, which Congress does not have the Constitutional authority to enact. Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency.

    Gresham’s Law describes this phenomenon, which can be summed up in one phrase: Bad money drives out good money. In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society.

    The second barrier: laws that prohibit the operation of private mints. Certain sections of U.S. code classified as anti-counterfeiting statutes were in fact intended to shut down private mints that had been operating in California. There is no reason to ban private companies from minting gold and silver coins to compete with the dollar.

    All currencies are based on trust, trust that the issuing authority will not debase the currency. If it becomes known that the issuer of a particular currency is minting underweight coins, people will stop accepting that currency and that company will go out of business. If someone else attempts to counterfeit that currency and pass those coins, there are sufficient counterfeiting laws on the books to prosecute those counterfeiters.

    Merchants and individuals are free to choose which currencies they accept, and in the absence of legal tender laws I believe that alternative currencies will gain more traction…”
    http://www.cnn.com/2009/OPINION/10/30/ron.paul.fed/index.html

    Rep. Paul begins to lay out in this, above, “Opinion” piece that, even, CNN, saw fit to publish..

  41. Greg0658 says:

    MEH at 1:20pm .. I saw a full page spread in our newspaper and was prodded by a friend of a friend in those SilverCert alternate dollars … or are you thinking along the Amero currency .. maybe we’re ready now .. hey matey / amigo

  42. danm says:

    All currencies are based on trust, trust that the issuing authority will not debase the currency. If it becomes known that the issuer of a particular currency is minting underweight coins, people will stop accepting that currency and that company will go out of business.
    ———————
    If the Fed did not do anything, the currency would drop like a rock because the World would run for the hills seeing the Emperor with no clothes.

    The excessive Fed printing will bring us to the same result: a currency devaluation. But the winners and the losers will be different. With Fed printing, the first ones to get the newly printed dollars will be the guaranteed winners.

    Now, why do you think the bankers are paying themsleves huge bonuses?

    All those saying that the bonuses mean nothing are slwing down the cleanup.

  43. Greg,

    the ‘Amero’ would be the fiat currency of the NAU
    sse http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Amero+NAU

    that’d be the opposite of what Rep. Paul is detailing..

    re: SilverCert alternate dollars , have no idea what those are/which ones they’d be..

    this: “The first barrier: Legal tender laws, which Congress does not have the Constitutional authority to enact. Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency.

    Gresham’s Law describes this phenomenon, which can be summed up in one phrase: Bad money drives out good money. In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society.”

    is the meat of the argument..