Winehole23
10-14-2012, 09:27 AM
IT has become almost unpatriotic to question the many and munificent bank rescues of 2008 and beyond. If you have the temerity to do so, you’re likely to hear that the bailouts were the only thing standing between us and financial obliteration. You will also be told that, four years on, many of the bailouts have made money. Enlarge This Image
http://graphics8.nytimes.com/images/2012/10/14/business/14-GRET-JP/14-GRET-JP-articleInline.jpg
It’s hard to argue against this narrative, not knowing what would have happened had cooler heads prevailed. But Sheila C. Bair (http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html?inline=nyt-per), former chairwoman of the Federal Deposit Insurance Corporation (http://www.fdic.gov/), is well positioned to question the dogma of the bailout brigade. And she does so repeatedly in “Bull by the Horns (http://freepressbooks.tumblr.com/post/32338688129/on-sale-now-bull-by-the-horns-by-sheila-bair),” her new book about the crisis. As one of the main participants in the battles surrounding the rescues, and perhaps the coolest head in attendance, Ms. Bair provides some straight talk that represents an important piece of history and a rebuttal to the conventional wisdom.
As described by Ms. Bair, the events of the fall of 2008 showed that many financial regulators were desperate to make anyone but those who created the crisis pay for its devastation.
For example, taxpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes. Needless to say, these people had no seats at the rescue tables.
Even more troubling, Ms. Bair and the F.D.I.C. were repeatedly shot down when urging regulators to replace a flailing bank’s management or require that a rescue operation force an institution to make fresh loans with the money it received. When the F.D.I.C. staff suggested barring Citigroup (http://topics.nytimes.com/top/news/business/companies/citigroup_inc/index.html?inline=nyt-org) from paying bonuses to executives if the government took losses on assets it had guaranteed, other regulators refused to go along.
But perhaps the most telling anecdote is from early October 2008, when Henry M. Paulson Jr., the Treasury secretary, summoned Ms. Bair to his office. No reason was given for the meeting. When she arrived, Ben S. Bernanke, the Federal Reserve (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html?inline=nyt-org) chairman, was already there. Timothy F. Geithner, then the president of the New York Fed (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_bank_of_new_york/index.html?inline=nyt-org), was on the phone.
Handed a piece of paper, Ms. Bair saw that she had been ambushed. It was a script, prepared for her by the Treasury and the Fed, stating that the F.D.I.C. was moving to guarantee all the liabilities in the financial system. Astonishingly, the guarantee would cover all bank depositors and even protect unsecured claims against institutions. In short, the F.D.I.C. was being asked to back “everybody against everything in the $13 trillion banking system,” Ms. Bair writes.
Dumbfounded, she told the men she had to discuss the plan with the F.D.I.C. board. Over a few days, they came up with a better, less costly plan.
If she had gone along, Ms. Bair said in an interview last week, “everyone who held bank debt would have immediately gotten a windfall profit,” as their bonds and other bank securities rose in value on the F.D.I.C. backing. “Of course, I wasn’t going to do that,” she adds, “and we ended up with a program that only guaranteed the renewal of expiring debt, which is where the problem was. And we charged a fee.”
Ms. Bair didn’t know it at the time, but this was the first of many situations when the Treasury and the Fed hoped to leave the F.D.I.C. holding the bag. She objected as often as she could, viewing these moves as attempts to assign responsibility for egregious behavior to hundreds of smaller institutions that did nothing to bring about the crisis.
http://www.nytimes.com/2012/10/14/business/sheila-bairs-big-questions-about-bank-bailouts.html?_r=1
http://graphics8.nytimes.com/images/2012/10/14/business/14-GRET-JP/14-GRET-JP-articleInline.jpg
It’s hard to argue against this narrative, not knowing what would have happened had cooler heads prevailed. But Sheila C. Bair (http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html?inline=nyt-per), former chairwoman of the Federal Deposit Insurance Corporation (http://www.fdic.gov/), is well positioned to question the dogma of the bailout brigade. And she does so repeatedly in “Bull by the Horns (http://freepressbooks.tumblr.com/post/32338688129/on-sale-now-bull-by-the-horns-by-sheila-bair),” her new book about the crisis. As one of the main participants in the battles surrounding the rescues, and perhaps the coolest head in attendance, Ms. Bair provides some straight talk that represents an important piece of history and a rebuttal to the conventional wisdom.
As described by Ms. Bair, the events of the fall of 2008 showed that many financial regulators were desperate to make anyone but those who created the crisis pay for its devastation.
For example, taxpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes. Needless to say, these people had no seats at the rescue tables.
Even more troubling, Ms. Bair and the F.D.I.C. were repeatedly shot down when urging regulators to replace a flailing bank’s management or require that a rescue operation force an institution to make fresh loans with the money it received. When the F.D.I.C. staff suggested barring Citigroup (http://topics.nytimes.com/top/news/business/companies/citigroup_inc/index.html?inline=nyt-org) from paying bonuses to executives if the government took losses on assets it had guaranteed, other regulators refused to go along.
But perhaps the most telling anecdote is from early October 2008, when Henry M. Paulson Jr., the Treasury secretary, summoned Ms. Bair to his office. No reason was given for the meeting. When she arrived, Ben S. Bernanke, the Federal Reserve (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html?inline=nyt-org) chairman, was already there. Timothy F. Geithner, then the president of the New York Fed (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_bank_of_new_york/index.html?inline=nyt-org), was on the phone.
Handed a piece of paper, Ms. Bair saw that she had been ambushed. It was a script, prepared for her by the Treasury and the Fed, stating that the F.D.I.C. was moving to guarantee all the liabilities in the financial system. Astonishingly, the guarantee would cover all bank depositors and even protect unsecured claims against institutions. In short, the F.D.I.C. was being asked to back “everybody against everything in the $13 trillion banking system,” Ms. Bair writes.
Dumbfounded, she told the men she had to discuss the plan with the F.D.I.C. board. Over a few days, they came up with a better, less costly plan.
If she had gone along, Ms. Bair said in an interview last week, “everyone who held bank debt would have immediately gotten a windfall profit,” as their bonds and other bank securities rose in value on the F.D.I.C. backing. “Of course, I wasn’t going to do that,” she adds, “and we ended up with a program that only guaranteed the renewal of expiring debt, which is where the problem was. And we charged a fee.”
Ms. Bair didn’t know it at the time, but this was the first of many situations when the Treasury and the Fed hoped to leave the F.D.I.C. holding the bag. She objected as often as she could, viewing these moves as attempts to assign responsibility for egregious behavior to hundreds of smaller institutions that did nothing to bring about the crisis.
http://www.nytimes.com/2012/10/14/business/sheila-bairs-big-questions-about-bank-bailouts.html?_r=1