Bair Stays In Her Lair
It's amusing, and very fitting, that Barney Frank is the elected official who publicly confirms that, indeed, Barak Obama's kind words for Sheila Bair mean that she's in at the FDIC for as long as she wants to be, or at least as long as Obama's in office and Frank rules the House Financial Services arena. Barney's been blowing air kisses Sheila's way since the summer of 2007, about as long as bankers and conservatives have been flashing gang hand signs at her and threatening to boil her kids' pet rabbit.
Commentator Thomas K. Brown at BankStocks.com greeted the latest news with a moan:"Arrrgh." Brown, who once described Bair as "idiotic," gives a laundry list of reasons that Sheila is not on his list of favorite people.
First, her loan modification fetish.
That’s nuts. I’ve said it before and I’ll say it again: a lender should agree to modify a loan only if it expects that the net present value of the modified loan would be higher than it would be if it were not modified. If the lender agrees to modify the loan under any other circumstance, it is simply engaging in a free giveaway to the borrower. That is something one would think a guardian of the soundness of the banking system would disapprove of. Not Bair. She seems to believe that if banks sprinkle their capital on delinquent subprime borrowers, the housing crunch will go away. She’s kidding herself.
Another reason: she's a slim reed who bends to whatever political winds may be blowing.
A judicious regulator? Please. Remember, for instance, what happened in 2006 when Wal-Mart wanted to start an industrial loan company? It was an instance of pure cravenness on Bair’s part--and was a good indication of her basic M.O. Naturally, a broad range of Wal-Mart’s traditional foes, from labor unions to community banks, loudly opposed the company’s move. But the guidelines for approving ILC applications are straightforward, and Wal-Mart met all of them. This was clearly a moment when a disinterested regulator (which is what Bair is supposed to be) should ignore the political winds and follow the rules. What did Bair do? She dithered, imposing one moratorium on ILC applications after another, for no reason other than to duck the heat she was feeling. In the end, Wal-Mart withdrew its application after it saw it wasn’t getting anywhere in the face of Bair’s stonewalling. This was not the fearless independent-mindedness that has the press so gushing.
Third reason: The FDIC under Bair has been asleep at the wheel in getting ahead of the coming reckoning that's coming on commercial real estate.
What did FDIC do to restrain the excesses in the CRE market? From what I can tell, nothing. Nobody expects the woman to be clairvoyant, but I don’t know of anything Bair’s agency did to rein in crazy CRE lending.
Reason numero cuatro: As a team player, Bair is the federal government equivalent of Pacman Jones.
The financial markets are currently in the midst of their greatest crisis in memory. I for one would appreciate it if the government’s key financial regulators were singing from the same hymnal, and would cut out the sniping, as they tried to fix the problem. But no one seems to snipe more (and try to undercut stated policies more) than Sheila Bair does. I don’t see how that helps anything.
Brown finishes with a prediction that once the new administration's honeymoon period is over, Bair will likely begin to grate on the nerves of the new boys and girls in the White House.
Nobody says the head of the FDIC has the easiest job in the world. But with her pseudo-populism and her eye for the camera, Sheila Bair has perfected the art of getting great headlines, not of making great policy. By the end, the Bush people seemed to regret Bair was on their team. I suspect in not very long, the Obama people will feel the same way. In the meantime, with Bair still at the FDIC, the government will likely be all the more hamstrung as it tries to sort out the mess.
On that last point, Damien Paletta of The Wall Street Journal also rang a warning bell last week.
Ms. Bair's presence in the administration could spark fireworks. Beloved by her supporters and disliked by opponents, Ms. Bair has been willing to lock horns not only with outgoing Treasury Secretary Henry Paulson, but also with Messrs. Geithner and Bernanke over the FDIC's role.
She has run ahead of the Bush White House in pushing for her preferred policies, leading some Democrats to champion her ascent. That could become a problem under Mr. Obama, whose White House will likely keep a tight hold on decision making relating to the economy and financial system.
During negotiations over the $700 billion bailout package for the financial sector, Democrats repeatedly tried to give Ms. Bair a role on an oversight board with influence over how the money was spent, despite objections from Treasury officials. Eventually, her agency was largely left out of the final law.
Obviously, we'll see. If Ms. Bair's efforts since her arrival at the FDIC two and one-half years ago have been directed to ensuring her survival into the term of a new administration that even an idiot could see would likely be populated by Democrats, she could now declare "Mission Accomplished" and get on board the train to the change we have been waiting for, wherever that train might be headed. If the train's going where Ms. Bair's inclined to travel anyway (i.e., Brokeback Foreclosure Relief Mountain), then she ought to become a team player. If not, she'll either go along to get along, or Obama will sack her sorry self. If the latter happens, don't expect a river of tears from either this blog or BankStock.com.
