One can but admire a woman brave enough to pick a professional career in which she will be surrounded and greeted with patronizing glances from self-assured males. This was the call made by Sheila Bair, who was appointed Chairman of the FDIC (Federal Deposit Insurance Corp.) by former President George W. Bush. She served five years, from 2006 to 2011. It must have been a true test of will to deal daily with a mix of alpha males, secure in their comfort zone. Her story of life in the world of finance is revealed in “Bull By The Horns: Fighting To Save Main Street From Wall Street And Wall Street From Itself.”
Body language and style were calculated to remind Bair that she, as chairman of the FDIC, was a player in the financial Little League while the major leaguers (Federal Reserve, Treasury and CEOs of huge investment firms) were the main attraction. This would be a misread of her clout. She was in charge of an agency with 4,500 employees, a billion-dollar operating budget, $4 trillion in insured deposits and the power to shut down a seriously troubled bank.
Office of the Comptroller of the Currency) was the dispersion of regulatory powers shared between each agency. The potential for collision over turf and different points of view about responsibility was enormous. A never-resolved clash between Bair and Timothy Geithner (at Treasury) was whether the principal goal in management of the financial meltdown was to bail out troubled institutions or to save public funds by closing down failed banks if they were beyond redemption.
There was general agreement that Bair had a very strong will and strength of character in clashes that were routine in the explosive world of bank regulation. She was a Republican who must have appeared to be a traitor in her persistent quest for workable regulatory rules. Her tenacity was legendary and on display in 2008 when the FDIC felt compelled to close down WaMu (Washington Mutual), a troubled bank with $300 billion in assets and $190 billion in insured deposits. When Bair informed the CEO that his bank was now on the troubled bank list, he shouted to his staff, “I cannot believe the continuing audacity of this woman.”
The fact was that Bair was one who saw clearly the excesses of Wall Street investment bankers and was not surprised when the financial system collapsed under the load of tainted assets. She had little patience for those who covered up their excesses with code words about “free markets,” “self-correcting markets,” “rational man” and “deregulation mania.” It is still an open question as to whether regulatory rules can “save Wall Street from itself.” Bair had a mission to do away with the “too big to fail” mentality on the assumption that no one was unaccountable.
Now that Bair is no longer in Washington, the big question is this: Can the reforms of the yet uncompleted Dodd-Frank legislation prove adequate “to save Wall Street from itself?” There is good reason for doubt. The Glass-Steagall Act, which successfully separated commercial banking from more risky investment banks, was rashly removed. Regulatory agencies lie dormant if there is an unspoken message for them to be ineffective. Campaign contributions have always proved effective deterrents to needed reform and we are comfortable doing business as usual.
A few snippets of remarks made by Bair before she finished her tour of duty monitoring the nation’s commercial banks will give a partial glimpse of her sense of mission. It can then be seen why she was persona non grata in Republican circles. “I was appalled that all of these institutions paid big bonuses to their executives within months of receiving such generous government assistance,” she writes. “Throughout the crisis and its aftermath, the smaller banks, that didn't benefit from all of the government largesse, did a much better job of lending than the big institutions did. The relationship between Washington and Wall Street had become too cozy.”
No wonder the big executives were glad to see her go. The doctor had put too much medicine in their capsules.
Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.