Bull by the Horns

by Sheila Bair

  240. Vikram Pandit: Heather Landy, “Pandit Says Basel III Looks Backward, Will Hurt Lending,” American Banker, October 25, 2010, www.americanbanker.com/issues/175_205/pandit-says-basel-III-looks-backward-1027574-1.html.

  241. Similarly, during numerous: See., e.g., Donna Borak and Joe Adler, “Bernanke, Bair Defend the ‘Balance’ in Regulators’ Plans for a Capital Surcharge,” American Banker, June 22, 2011, www.americanbanker.com/issues/176_120/bair-bernanke-capital-surcharge-1039289-1.html; Nin-Hai Tseng, “Sheila Bair Steps into the Dimon-Bernanke Rumble,” June 9, 2011, http://finance.fortune.cnn.com/2011/06/09/sheila-bair-steps-into-the-dimon-bernanke-rumble/.

  Chapter 23: Too Small to Save

  242. So in July 2009: FDIC, “FDIC Board Approves Proposed Policy Statement on Qualifications for Failed Bank Acquisitions,” July 2, 2009, www.fdic.gov/news/news/press/2009/pr09112.html.

  243. “the FDIC is right”: Andy Stern, “Private Equity and the Banks,” The Wall Street Journal, August 25, 2009, http://online.wsj.com/article/SB10001424052970203706604574370581617614424.html.

  244. We reduced it: FDIC, “FDIC Board Approves Final Statement on the Acquisition of Failed Depository Institutions,” August 26, 2009, www.fdic.gov/news/news/press/2009/pr09152.html.

  245. Though that number sounds high: See, e.g., David Evans, “FDIC May Need $150 Billion Bailout as More Banks Fail (Update3),” September 25, 2008, www.bloomberg.com/apps/news?pid=newsarchive&sid=amZxIbcjZISU. OMB projected losses of about $112 billion.

  246. There was just one catch: See, e.g., “China Minsheng Bank recognises $120 mln US bank loss,” Reuters (November 10, 2009), http://www.reuters.com/article/2009/11/10/china-minsheng-idUSBJD00320720091110; “East West Bank, Pasadena, California Assumes All the Deposits of United Commercial Bank, San Francisco, California,” November 6, 2009, www.fdic.gov/news/news/press/2009/pr09201.html.

  247. It wanted to know: Greg Hernandez, email to Andrew Gray re Chairman Interview Request, January 27, 2010.

  248. The FDIC IG did look: Office of Inspector General, FDIC, “Evaluation of the Timeliness and Factors Considered in Closing Broadway Bank, Chicago, Illinois,” August 2010, www.fdicoig.gov/reports10/10-004EV.pdf.

  249. A few days later: Bianna Golodryga, “Warren Buffett: Nothing Improper in Goldman Transaction,” May 3, 2010, http://abcnews.go.com/GMA/buffett-improper-goldman-transaction/story?id=10535378#.T7rdBWX8t8E.

  250. Within a few days: John D. McKinnon and Elizabeth Williamson, “Goldman Joins Race to Save Chicago Bank,” The Wall Street Journal, May 13, 2010, http://online.wsj.com/article/SB10001424052748703950804575242772016889464.html?mod=rss_whats_news_us_business.

  251. “have a moral”: Elizabeth Williamson, “Wall Street Scrambles for ShoreBank’s Survival,” May 17, 2010, http://online.wsj.com/article/SB10001424052748704614204575246760809392200.html.

  252. Indeed, the FDIC inspector general: Office of Inspector General, FDIC, “Recapitalization and Resolution Efforts Associated with ShoreBank, Chicago, Illinois,” March 2011, www.fdicoig.gov/reports11/11-001EV.pdf.

  253. “There is no requirement”: American Bankers Association, “New Deposit Insurance Premium Rates Far Too High, Says ABA,” November 2, 2006.

  254. The FDIC board unanimously raised: Alison Vekshin, “FDIC Sets Premium Rates Above Level US Banks Had Suggested,” November 2, 2006.

  255. In October 2008, we approved: FDIC, “FDIC Board Adopts Restoration Plan—Proposes Higher Assessments on Insured Banks,” October 7, 2008, www.fdic.gov/news/news/press/2008/pr08094.html.

  256. That would have brought in: FDIC, “Deposit Insurance Assessments: Final Rule on Assessments; Amended FDIC Restoration Plan; Interim Rule on Emergency Special Assessment,” March 2, 2009, www.fdic.gov/news/news/financial/2009/fil09012.html.

  257. on May 22, the FDIC adopted: FDIC, “Special Assessment: Final Rule,” May 22, 2009, www.fdic.gov/news/news/financial/2009/fil09023.html.

  258. on November 12, we unanimously: FDIC, “Prepaid Assessments: Final Rule,” November 12, 2009, www.fdic.gov/news/news/financial/2009/fil09063.html.

  259. Dimon announced that he viewed: “CGI Annual Meeting 2009,” September 25, 2009, www.clintonglobalinitiative.org/ourmeetings/2009/default.asp.

  Chapter 24: Squinting in the Public Spotlight

  260. “take a break”: “Snafu or Scandal?,” San Diego Union-Tribune, October 11, 2006, www.utsandiego.com/uniontrib/20061011/news_lz1ed11top.html.

  261. a Wall Street Journal editorial: “The Coming Deposit Insurance Bailout,” The Wall Street Journal, September 1, 2009, http://online.wsj.com/article/SB10001424052970204731804574385072164619640.html.

  262. a front-page New York Times story: Stephen Laboton and Edmund L. Andrews, “As U.S. Overhauls the Banking System, 2 Top Regulators Feud,” The New York Times, June 13, 2009, www.nytimes.com/2009/06/14/us/politics/14power.html?pagewanted=all.

  263. “infighting”: Damian Paletta, “Infighting Besets Financial-Oversight Council,” The Wall Street Journal, September 29, 2010, http://online.wsj.com/article/SB10001424052748703431604575522330414286778.html.

  264. One story: Mark DeCambre, “Bair Baits Geithner,” New York Post, June 10, 2009, www.nypost.com/p/news/business/item_sxvPNaDKoBA3nmFUxsZmqK;jsessionid=6112EBBF97E933469EEE2562ADF6A519.

  265. In 2007, Joe Nocera: Joe Nocera, “In a Mess, Yes, but She’s Got a Plan,” The New York Times, December 15, 2007, www.nytimes.com/2007/12/15/business/15nocera.html?pagewanted=all.

  266. I had the amazing privilege: Michael Scherer, “The New Sheriffs of Wall Street,” Time, May 13, 2010, www.time.com/time/magazine/article/0,9171,1989144,00.html.

  267. But my favorite profile: Ryan Lizza, “The Contrarian: Sheila Bair and the White House Financial Debate,” The New Yorker, July 6, 2009, www.newyorker.com/reporting/2009/07/06/090706fa_fact_lizza.

  268. Later, it was leaked: The leak was first reported on the website Jezebel and later picked up by a number of blogs. See Jenna Sauers, “The Real Reason Women’s Magazines Suck,” July 28, 2009, http://jezebel.com/5324718/the-real-reason-womens-magazines-suck.

  269. published one: “31 Ways of Looking at Power,” O, the Oprah Magazine, September 2009.

  270. “This article suggests”: Chris Whalen, “Article on Sheila Bair by HuffPo Investigative Fund,” January 22, 2010, www.ritholtz.com/blog/2010/01/article-on-sheila-bair-by-the-huffington-post-investigative-fund/.

  271. “We weren’t trying”: FDIC, “Remarks by Sheila Bair, Chairman, Federal Deposit Insurance Corporation at the John F. Kennedy Presidential Library Foundation 2009 Profile in Courage Award Ceremony; John F. Kennedy Presidential Library and Museum; Boston, MA,” May 18, 2009, www.fdic.gov/news/news/speeches/archives/2009/spmay1809.html.

  Chapter 25: Farewell to the FDIC

  272. “We need to get past”: FDIC, “Remarks by FDIC Chairman Sheila C. Bair to the ABA Government Relations Summit, Washington, DC,” March 16, 2011, www.fdic.gov/news/news/speeches/chairman/spmar1611.html.

  273. I began my speech: FDIC, “Remarks by FDIC Chairman Sheila Bair to the ICBA National Convention, San Diego, CA,” March 22, 2011, www.fdic.gov/news/news/speeches/chairman/spmar2211.html.

  274. “Quite truthfully”: Barbara A. Rehm, “How Frank Keating Got to the ABA and Where He Aims to Take It,” American Banker, May 25, 2011, www.americanbanker.com/issues/176_101/frank-keating-aba-1037984-1.html?zkPrintable=true.

  275. “In a world”: “Remarks by FDIC Chairman Sheila Bair to the National Press Club, Washington, D.C.,” June 24, 2011, www.fdic.gov/news/news/speeches/chairman/spjun2411.html.

  Chapter 26: How Main Street Can Tame Wall Street

  276. Dodd-Frank expressly prohibits: See sections 204, 206, 210, and 214 of the Dodd-Frank Act.

  277. Ironically, big-bank advocates: Rich Miller, “Dodd-Frank Law May Hinder Crisis Response by U.S. Policy Makers,” November 22, 2011, www.bloomberg.com/news/2011-11-22/dodd-frank-may-hamper-policy-makers-shielding-banking-system-in-a-crisis.html#, quoting John Dugan.

&n
bsp; 278. “in a complex”: Simon Johnson, “Progress on Letting Big Banks Fail,” February 2, 2012, http://economix.blogs.nytimes.com/2012/02/02/progress-on-letting-big-banks-fail/.

  279. a kind of Glass-Steagall-light: For instance, Senator Sherrod Brown (D-OH) has sponsored the SAFE Banking Act, which would place size limits on the megabanks. Senators John McCain (R-AZ) and Maria Cantwell (D-WA) have sponsored legislation to reinstate Glass-Steagall. Tom Hoenig, currently an FDIC director has proposed banning broker-dealer operations by commercial banking organizations but would permit certain other types of securities activities.

  280. Congress made a huge mistake: Commodity Futures Modernization Act of 2000, http://thomas.loc.gov/cgi-bin/bdquery/z?d106:H.R.5660.

  281. By the end of 2007: “ISDA Market Survey; Notional Amounts Outstanding at Year-End, All Surveyed Contracts, 1987-Present,” 2010, www.isda.org/statistics/pdf/ISDA-Market-Survey-annual-data.pdf.

  282. Partnership for Public Service: Max Stier, President and CEO, Partnership for Public Service, letter to The Honorable Joe Lieberman et al., September 15, 2011.

  283. Since Fannie and Freddie: “FHFA Strategic Plan for Enterprise Conservatorships,” February 21, 2012 http://www.fhfa.gov/webfiles/23344/StrategicPlanConservatorshipsFINAL.pdf.

  284. As Warren Buffett has pointed out: Warren E. Buffett, “Stop Coddling the Super-Rich,” The New York Times, August 14, 2011, www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1&gwh=5CE5728BB33F99D502CEFBCE8736B466.

  285. Unsustainable budget deficits: Sheila C. Bair, “Will the Next Crisis Start in Washington?,” The Washington Post, November 26, 2010, www.washingtonpost.com/wp-dyn/content/article/2010/11/25/AR2010112502215.html.

  286. In February 2012: “Aggregate Reserves of Depository Institutions and the Monetary Base,” Federal Reserve Statistical Release, February 16, 2012, www.federalreserve.gov/releases/h3/20120216/h3.htm.

  287. The CBO has estimated: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12039/01-26_fy2011outlook.pdf.

  288. FSOC’s 2011 Annual Report : FSOC, 2011 Annual Report, July 2011, www.treasury.gov/initiatives/fsoc/Documents/FSOCAR2011.pdf, pp. 4, 10, 32–35, 133, 134. The FDIC also pressed hard for language emphasizing the need to end too big to fail and effectively address mortgage-servicing issues as essential to long-term financial system stability. Though language to that effect was also included, the FSOC has failed to prioritize those issues.

  Chapter 27: It Could Have Been Different

  289. has spoken out in favor: Remarks of Ed Clark, Group President and CEO, TD Bank Group, “Building a Better Banking System for America,” before the Chief Executives Club, Boston College, April 26, 2012.

  290. “During the height of the crisis”: Statement of the Shadow Financial Regulatory Committee on Treasury Mismeasurement of the Costs of Federal Financial Stability Programs, May 7, 2012, www.aei.org/files/2012/05/07/-treasury-mismeasurement-of-the-costs-of-federal-financial-stability-programs_13022735.

  291. $147 billion and counting: As of the first quarter of 2012, the U.S. Treasury Department had invested $187 billion in Fannie Mae and Freddie Mac but had received $40 billion in dividend payments for a net outlay of $147 billion. See, FHFA First Quarter 2012 Conservator’s Report, www.fhfa.gov/webfiles/24016/Conservator’sReport1Q2012061512_FINAL.pdf.

  Epilogue

  292. Indeed, he seemed offended: “Addressing the Need for Comprehensive Regulatory Reform,” Hearing Before the Committee on Financial Services, United States House of Representatives, March 26, 2009, p. 36.

  INDEX

  AARP, 353

  Abernathy, Wayne, 316

  ABX index, 369n

  accounting:

  mortgage-related investments and, 107

  securitizations and, 233

  tricks in, 169

  Adelson, Mark, 63–64

  adjustable rate mortgages (ARMs), 324

  hybrid, see hybrid ARMS

  option, 43–45, 67, 77, 79–80

  adverse selection, 4, 114

  affordable housing, 55, 56, 57

  Afghanistan, 310

  Against the Gods (Bernstein), 150

  agricultural futures markets, 342

  Air Force One, 150

  Akaka, Daniel, 344

  Alexander, George, 58, 62, 65

  Ally Bank, 175–76, 246

  Alvarez, Scott, 48, 222

  American Banker, 67, 316

  American Bankers Association (ABA), 24, 137, 224, 228, 291, 293, 357

  Government Relations Conference of, 312–15, 316

  American International Group (AIG), 54, 114, 118–19, 124, 180, 229, 301, 326

  bailouts of, 187, 214, 241, 358, 359

  bonuses at, 153, 181–83, 190, 362

  CDS protection sold by, 333

  as shadow bank, 186, 330

  Transaction Development Group at, 162–63

  American Securitization Forum, 64, 66

  Ameriquest, 47

  Amery, Mardie, 320–21

  Amherst, Mass., 12, 14, 288, 300

  Bair home in, 209–11

  Anthony, Casey, 319

  anti-predatory lending laws:

  proposed federal, 50

  state, 50–51

  App, Steven, 19

  asset management, 187, 328

  assets, toxic, 126, 156, 166, 167, 170, 205, 277

  asset sales, 203

  Associated Press, 216

  Atlanta, Ga., 311

  auctions:

  bank, 274–79, 298–99

  loan, 290–91

  Audacity of Hope, The (Obama), 318

  Australia, leverage ratio for banks in, 34

  automotive industry, 175–77

  automotive loans, 176

  Bachus, Spencer, 50, 195

  Bailey, Kevin, 261

  bailouts, 6–7, 28, 81, 111, 120, 142, 153, 155, 158, 175, 179–80, 182, 216, 218, 222–23, 229, 231, 304, 305, 326, 355, 358–59, 362

  Bair vs. Geithner on, 99–100

  of Bear Stearns, 107

  of BofA, 126–28

  of Citi, 74, 114, 115–16, 118–19, 121–27, 143, 144, 165–74, 187, 241, 270, 304, 339, 359

  discontent with, 7, 116, 118, 129, 231

  in Europe, 257, 260

  FDIC’s opposition to, 184, 185, 195, 197, 214–15

  legislation on ending of, 191, 219, 238, 356, 357

  on OCC banks, 100, 340

  Treasury proposals and, 183–84, 189–91, 199, 224

  in 2008, unwinding of, 201–11

  for Wachovia, 98–101

  Bair, Sheila:

  anti-bailout protestors and, 116

  anti-predatory lending regulation supported by, 48

  appointment as FDIC chairman, 11, 12–13, 14–16, 57

  awards given to, 308–9

  at bailout meeting, 1–7

  Basel II opposed by, 27–40, 145

  beliefs and principles of, 8

  as capitalist, 202

  on capitalization, 266

  as chairman of FDIC, 7

  coach flights of, 83

  criticism of, 89–90, 131–32, 138, 143, 207, 283, 301, 303–4, 318

  dividend increases approved by, 245–46

  on ending too-big-to-fail, 215

  at FDIC, 1, 7, 332, 335, 339

  FDIC appointment of, 11, 12–16, 297, 300, 339

  FDIC departure of, 311–21, 359, 361

  FDIC management issues of, 17–26, 27

  fixed-rate mortgages of, 67

  on foreclosure crisis, 249

  gender issues for, 297, 302–4

  government jobs of, 12

  international leverage ratio supported by, 33–36

  media and, 83, 297–310

  modification of subprime mortgages supported by, 59–71

  mortgage refinancing of, 208–11, 307–8

  personal threats to
, 162–63

  philosophical disagreement between Geithner and, 99–100

  protective instincts of, 70

  as Republican, 8, 13, 129, 141, 231, 306

  risk-based assessments promoted by, 215, 218

  Senate confirmations of, 14, 15

  stronger mortgage regulatory standards advocated by, 41–48, 49–58

  on TARP and unlimited banking guarantees, 109–20

  term of, 143, 231–32, 241, 254–56, 267, 271–72, 279

  at Treasury, 1–15, 23, 49, 50–51, 285, 346

  Banco Popular, 282

  bank charters, private equity and, 277–79

  bank consultants, 254–55

  bank examiners, 65, 79, 155, 168, 170, 173, 280, 329

  concentrations disliked by, 42–43

  bank failures, 17, 20, 57, 71, 79, 80, 83, 87, 226, 239, 244–45, 297, 300–301, 352, 353

  averting of, 171

  through insolvency, 84

  through liquidity failure, 84–85

  projected, 119

  prompt corrective action in, 275

  rate of, 279

  60 Minutes coverage of, 298–99

  see also specific banks

  bank holding companies, 118, 178, 183, 185, 186, 195, 201, 246, 258, 326, 341

  for community banks, 221

  debt of, 113

  foreign-owned, 220

  for large banks, 176–77, 366n

  for state-chartered institutions, 213–14

  thrifts, 117–18

  banking, golden age of, 17, 20, 79

  banking industry trade groups, FDIC premiums and, 22

  bank managers, 329

  Bank of America (BofA), 2–3, 5, 100, 109, 192, 238, 252–53, 256, 289, 331, 368n

  bailouts of, 126–28, 210, 241

  Bair’s mortgage refinance and, 208–11

  Basel II consequences for, 33

  Countrywide acquired by, 76, 160

  foreclosure moratorium of, 244

  Merrill Lynch bought by, 6, 110, 116, 119, 126–28, 160

  overextension of, 110–11, 114, 259, 268

  ring fence for, 127–28

  TARP repayment of, 202–5

  Bank of England, 262–63, 269