Sheila Bair is featured in a new article in the New Yorker by Ryan Lizza. Bair keeps coming off as an Elliott Ness type, even though she’s a Republican. We’ve gotten so used to Republicans being the discredited bad guys that it’s hard to imagine one that might have the integrity of a Patrick Fitzgerald in the area of bank regulation. Unfortunately, Obama’s claims of bipartisanship only go so far. Bair, described as “not a team player” by Tim Geithner’s guys, is having her department subordinated to Treasury so that the bankers can escape the possibility that the FDIC can take them over. For the first time since the FDIC was created, its power in the area of bank regulation and resolution has been become secondary to the power of the Treasury and the Fed. The backstory has a bit of that old familiar ring to it:
These debates entered into the Administration’s discussions about building a new regulatory architecture. In late March, Geithner previewed for Congress some of the key concepts that Treasury wanted. The outline seemed to match the Bair camp’s ideas. [Ladies, has this ever happened to you?] A new authority with the power to take over large financial institutions that posed a systemic risk to the economy was modelled on the F.D.I.C., which, Geithner suggested in his testimony, would be an equal partner with Treasury in resolving such firms if they failed. He seemed to be saying that although he and Bair may have disagreed about how to handle the current crisis, there was much more consensus about how to deal with a future one.
But in the white paper detailing the new legislation, which the Administration released on June 17th, all the new authority to regulate firms that posed systemic risk was vested in the Federal Reserve. During Geithner’s testimony before the Senate, Jim Bunning, of Kentucky, echoing Bair, was incredulous. “It took fourteen years for the Fed to write one regulation on mortgages after we gave it the power to do that,” he said. “What makes you think that the Fed will do better this time around?” In addition, while the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June—when Bair’s aggressive ideas about how to handle Citigroup leaked to the press—Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick. The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”
When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.
Ok, to recap: Bair came up with a pretty good idea to regulate bank holding companies by the FDIC. Geithner took that idea and made it his own with the additional spin that the department that does a superb job of actually regulating the banks, the FDIC, would be bypassed as regulator in favor of the Treasury, which has a record of one regulation in the past 14 years. Problem solved! There is something deeply unsettling going on here if the Obama administration is willing to trash one of the best departments it has in order to give the finance guys what they want. We’re all going to suffer for this.
I would like to attribute part of this to stupidity but in the past couple of decades, the way women who know better have been dismissed as subordinates to be ignored or outliers who are unserious has been pretty astonishing. Sexism costs.
On the economic front, Paul Krugman is downright dour this morning and his patience with the Obama administration appears to have been short-lived. He probably resolved to give positive reinforcement to the Obamatons in the WH whenever they did something right but it looks like the adminstration is full of slow learners with cocky attitudes. Um, that kind of s#!^ isn’t tolerated at Princeton. Paul has always thought that the stimulus package was too small and now he thinks we are headed off a cliff if we don’t get another one. Methinks Paul has been looking at some graphs and they’re bad, bad, bad.
Bad for us too. As some of you may know, my industry has been going through a lot of changes recently and laying off obscene numbers of scientists. It’s especially bad in the US where the workforce has no protections and labor here is even more of a variable cost than in Europe. Some of my colleagues were talking about this just yesterday, hoping that they could ride it out and escape the Grim Job Reaper’s scythe until the economy picks up. I said I had been reading Paul Krugman and this recession isn’t like the other ones in recent history and the economy probably isn’t going to pick up for the forseeable future, ie a decade or more. Yep, Paul’s crepe hanging ways have gotten to me too. Thanks a lot, Paul, for shattering our illusions of economic security. Why can’t you just smoke hopium like your sell-out colleagues?
There’s more where that came from. Simon Johnson is busting on the banks this morning at Baseline Scenario. I’m getting a sick feeling that the Obama admin has completely lost the plot and is no longer in control. They may have thought they could handle it but it’s clear that they don’t have the cojones to go up against the bankers. It reminds me of Jon Corzine promising to rein in NJ’s property taxes and then just throwing up his hands in frustration a couple months after taking the job. Neither Obama or Corzine has any fricking clue what their doing.
Alegre’s Corner has been going gangbusters lately. I mean, Day-um! There are some really good reads there. Here are just a few you should check out:
Regarding Franken, I respect his decision to put Minnesota first and to compromise when it’s in Minnesota’s best interest. Let’s face it, even if he is the 60th vote, it is unlikely that his firewall against the filibuster is going to get much action except in the most unusual circumstance. But his vote will clarify the fault line that exists in the Democratic caucus in a way that will be obvious to all voters. And when we can clearly identify the culprits, some of whom may not be completely obvious right now, we can go after them in the primaries. So, it’s all good. Just do your best, Al. Make the rest of us human and visible. That’s all we ask.
For those who are waiting for it, here’s your Michael Jackson news du jour:
Debbie Rowe, who is the biological parent of two of the Jackson kids, is preparing to go mano a mano with Kathryn Jackson over custody. Ok, let me see if I have this straight: The biological mother who relinquished custody, hasn’t seen the kids in years and as recently as last week said she doesn’t want them in her life, is going to go up against the custodial grandmother who is a Jehovah’s Witness and is probably partially responsible for Michael’s lifelong pathological quest for his missing childhood. Why can’t these ultra rich people ever get these things straight in their wills??? It’s obvious that Diana Ross, who has no biological connection, would be the better choice here.
Developing: My colleague alerted me to a new bill being pushed through the NJ legislature that would guarantee local energy producers a profit regardless of market conditions. Not sure of the details but there was an organization canvassing her neighborhood the other day that was agin it. After what Matt Taibbi reported the other day about Goldman-Sachs possible involvement in the profit making potential of cap and trade credits, it’s important to track all of this stuff down and figure out if there are any connections.
Hey! Summer has arrived in NJ. No, really! We’ve managed to get a few days of mostly sunny skies with occasional WTF?! sunshowers and temperatures that justify ditching the sweater. I might even put on a pair of shorts today. OooooOOOOoooo! Last Sunday was probably the nicest day for all of the month of June. I have a picture for posterity of the Red Mill Museum in Clinton, the site of last Sunday’s Renaissance Faire (Still have the big bruise on my arm from taking up archery again for the afternoon). You can almost feel the cool water of the Raritan River’s south branch…
New Jersey: More than an exit.
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