Bull by the Horns by Sheila Bair

Bull by the Horns by Sheila Bair

Skewed financial incentives and lax regulation with regards to capital adequacy and derivatives trading are shown to be the major drivers of the economic downturn. I appreciated the chapter on "too small to save" which gives an account of the day to day operations of the FDIC - just how do they go about resolving failing institutions? That chapter also highlights how politically charged some of these resolutions can be, for example almost any bank in Chicago falls into this category. Sheila pulls no punches and names names, including poorly managed institutions, individuals and agencies who worked at cross purposes.

So much for Hank Paulson’s, Timothy Geithner’s and Alan Greenspan’s hands off capitalism. Timothy Geithner as head of the New York Federal Reserve was charged with monitoring the big New York investment banks and we know how that worked out. And Paulson spent years at Goldman Sachs fully aware of the fact that a huge amount of money was being made on derivatives. They come across in Bull by the Horns as a couple of kids who made a mess of the house and were trying to clean it up before the parents got home. The first baby boomer hit 65 years of age in the very bottom of the housing recession for most of the country.

But throughout 2009, even after the financial system stabilized, we continued generous bailout policies instead of imposing discipline on profligate financial institutions by firing their managers and boards and forcing them to sell their bad assets. A Treasury aide distributed a terms sheet, and Paulson asked each of the CEOs to sign it, committing their institutions to accept the TARP capital. My stomach tightened again when I saw that the terms sheet referenced only the Treasury program, not the FDIC’s. (We would have to separately follow up with all of the banks to make sure they subscribed to the FDIC’s programs, which they did.) John Mack signed on the spot; the others wanted to check with their boards, but by the end of the day, they had all agreed to accept the government’s money.

There were many financial institutions that did not engage in the excessive risk taking that took our financial system to the brink. Yet all members of the financial services industry were tainted by the crisis and the bailouts that followed. More than any other institution represented in that room, his bank was in trouble.

Our internal director, Thomas Curry, was a former Massachusetts banking supervisor. Though a registered independent, Tom had close ties to the Senate Democratic leadership and Sarbanes’s office.

And, 'bankers' will always come up with innovative ways to circumvent rules. Thus, financial reform and the need for regulation and scrutiny of banks is a "forever war." I’m glad I read Geithner’s book first and I went back to check portions of his book while I read hers. I came away with the opinion that Geithner is low maintenance while Bair is high maintenance. President Obama schmoozed her at some length on a plane trip on AF One.

Basel II, Basel III & the Financial Crisis – Bull by the Horns – a review.

Additionally her recommendation that there should be “one point of contact” for the distresses seller fell on deaf ears. Ben Bernanke arrived on the scene as Chairman of the Federal Reserve after the damage had been done and Shelia Bair arrived as Chairman of the Federal Deposit Insurance Corporation in 2008 when it was a full blown crisis.

He was viewed somewhat as a country bumpkin by the CEOs of the big New York banks, and not completely without justification. His bank had been healthy going into the crisis but would now be burdened by those ill-timed, overly generous acquisitions of two of the sickest financial institutions in the country. As we talked, out of the corner of my eye I caught Vikram Pandit looking our way.

Many of my positions have received editorial endorsements ranging from The Wall Street Journal to The New York Times, from the Financial Times to The Guardian to Mother Jones. My most cherished accolade during the crisis came from Time, which, in naming me to its Most Influential People list, called me the little guy’s protector in chief. I’ve always tried to play it down the middle and do what I think is right. I understand—and share—the almost universal outrage over the financial mess we’re in and how we got into it. People intuitively know that bailouts are wrong and that our banking system was mismanaged and badly regulated.

• But as the primary regulator - or from the vantage point of failing institutions the grim reaper - for thousands of banks the FDIC arguably failed to quell the rapid rise in real-estate lending or the growing tendency among some banks to seek out less secure forms of balance sheet funding.
• Wells was a much stronger, better-managed bank and could buy Wachovia without help from us.
• Tim Geithner, the Treasury secretary and former head of the New York Federal Reserve, receives much of her scorn - not least for appearing to put Citigroup’s survival above most other considerations during the height of the financial crisis that began in 2008.
• Despite the beneficial effects resulting from the $125 billion injected into financial services — such as restoring faith in banking, preventing banking from falling off the financial cliff and minimizing the loss of jobs — Bair disparages the effects of TARP.

They are outnumbered by the bad guys, who include other government officials as well as “boneheads” in the private sector whom Ms. Bair doesn’t shy away from bashing. (She treats Vikram Pandit, head of Citigroup until a few weeks ago, especially harshly.) The archvillain, though, unquestionably is President Obama’s Treasury secretary, Timothy F. Geithner. This interesting book provide a specific insides perspective on the financial crisis from the vantage point of one regulator.

Bair, Sheila

Taking the “bull by the horns” would have required Bair to do more digging, more interviewing and more investigating into where the FDIC went wrong rather than masking its limitations. Right now, the bulls are still leading the way, and Wall Street and the stock market have bounced back — thanks, to a large degree, to that $125 billion in TARP money. Bair also uses her book to settle scores, particularly with Geithner, who was named President Obama’s Treasury Secretary in 2008. In Bair’s view, Geithner repeatedly slights her, doesn’t respect her or confer with her and steamrolls her.

I was also subject to malicious press leaks and personal attacks, and my family finances were investigated. I even received threats to my personal safety from people who took losses when we closed banks, warranting a security detail through much of my tenure at the FDIC.

This is probably the best memoir written about the financial crisis--and believe me, I have read them all. It's not the easiest read nor is it all that accessible to those without some financial background, but it's such an honest background. But really, it's about the fundamental difference between regulators--Treasury is political and FDIC has skin in the game. So of course she was cautious and Geithner wanted to save all the banks. But the extreme downsizing was really just one symptom of a much more serious disease.

I might have tended to ignore this part except she provided some emails that came to light that clearly demonstrated the sexist nature of some of the meetings, or exclusion from them. I have learned from other accounts that she was seen as one of the adults in the room and that her points of view were valued in the congress and eventually were reflected in the Dodd-Frank legislation. Sheila Bair is the former Chairman of the FDIC (Federal Deposit Insurance Corporation).

The fact remained that with the exception of Citi, the commercial banks’ capital levels seemed to be adequate. The investment banks were in trouble, but Merrill had arranged to sell itself to BofA, and Goldman and Morgan had been able to raise new capital from private sources, with the capacity, I believed, to raise more if necessary. Without government aid, some of them might have had to forego bonuses and take losses for several quarters, but still, it seemed to me that they were strong enough to bumble through.

I have tried to explain in very basic terms the key drivers of the crisis, the flaws in our response, and the half measures we have undertaken since then to correct the problems that took our economy to the brink. Many of those battles were personally painful to me, but I take some comfort that I won as many as I lost. I was the subject of accolades from many in the media and among public interest groups.