BLOG VIEW: I hate to rush time, but I am eager for 2011 to come along – if only to enjoy the possibility of restoring genuine leadership to the Federal Deposit Insurance Corp. (FDIC).
I am sorry, but I am not among the Kool-Aid drinkers that continue to detach the stewardship of FDIC Chairwoman Sheila Bair from the problems that afflicted the financial services industry. Bair was sworn into office in 2006 – and while it is wrong to specifically blame her for the chaos that ensued since she took over the FDIC, it is difficult not to notice her inability to halt the tumult and her simultaneous insistence that she was not to blame for any portion of the mess.
Since the financial crisis began, Bair – or, at least, her publicists – have done a wonderful job in recasting her as being the sole voice of sanity during the decline of the U.S. economy. These efforts first took root in March 2009 when Bair inexplicably received the Profile in Courage award from the Kennedy Library Foundation. The reason for the honor, according to the foundation, was because of the ‘political courage’ she displayed in ‘sounding early warnings about conditions that contributed to the current global financial crisis.’
In June 2009, she was the subject of a lengthy profile in The New Yorker magazine. The article, titled ‘The Contrarian,’ presented Bair as the Cassandra who vainly warned the Bush administration of the coming economic fall. Within that profile, economist Robert Kuttner facetiously described her as a skunk at a picnic, explaining that she was ‘the only voice on the other side of many of these issues.’ That article made quite an impact in shaping public perception of the FDIC chairwoman – it was still being quoted as recently as two weeks ago, when the Los Angeles Times conducted an interview with Bair.
That's all fine, but there is a significant difference between being aware of a pending catastrophe and successfully calling people to action. Bair's influence in the Bush White House was weak to nil, and her lack of authority never abated as the crisis intensified. John Reich, director of the Office of Thrift Supervision, was brutally dismissive of Bair when she insisted on creating a regulatory contingency plan in the event of Washington Mutual's failure. ‘I cannot believe the continuing audacity of this woman,’ wrote Reich in an e-mail that was later made public.
Bair openly acknowledged her lack of influence with the federal power brokers, especially in the period when the bailout strategies were being formulated. In an interview with Time magazine in May, she recalled her relationship with then-Treasury Secretary Henry Paulson and New York Federal Reserve President Timothy Geithner, who would later succeed Paulson.
‘We generally worked well together, but there were times when I felt the guys kind of got in a room and made a decision and then called me in,’ she said. ‘And when I would ask questions or push back, I was being 'difficult.'’
One might hope that Bair could ‘ask questions or push back’ on the subject of bank failures. As of last week, there were 149 bank failures in 2010, compared to 140 in 2009, 25 in 2008 and three in 2007. Also last week, the FDIC's list of ‘problem banks’ swelled to 903 institutions. Financial blogger Martin D. Weiss noted that this was 10 times the number of institutions on the FDIC's ‘problem banks’ in 2008, while the current asset total of today's at-risk banks – $419.6 billion – was 16 times the amount of two years ago.
Any bank failure is a terrible situation, but the deep tragedy here is that many of the failed banks are community-level institutions that were never responsible for the shenanigans of 2008. Instead, these smaller banks were fatally tarred with the residue of the financial crisis and could not continue to operate amid the upheaval in the residential and commercial lending markets. The consolidation of the community banking sector is a lose-lose situation that damages the economy, and the situation is not getting better.
I am unaware that Bair ever acknowledged her own failings in regard to any aspect of this atrocious situation. When the Time magazine writer asked about the crisis facing community banks, she changed the subject by blithely stating, ‘It's important that people understand that the number of bank failures is still a very small percentage of the overall number of insured institutions in the country – and, obviously, their insured deposits are protected.’
So, who will replace Bair? My guess is that the near-term answer is nobody. The Obama administration has an odd habit of leaving important leadership posts at regulatory entities vacant for extended periods of time. An acting-chairperson can function without having to be grilled by a politically charged Senate.
As for Bair, she stated that her post-FDIC life will include authoring her memoirs. She joked that a possible title could be a riff on the Reich comment, ‘The Audacity of This Woman.’ Personally, I think there is a more appropriate title that would mirror her FDIC years: ‘The Bad News Bair.’
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
