Former U.S. bank regulator Bair settles scores, questions bailouts

NEW YORK Fri Oct 12, 2012 6:16pm EDT

Sheila Bair speaks during her last scheduled news briefing at FDIC headquarters in Washington, May 24, 2011. REUTERS/Jonathan Ernst

Sheila Bair speaks during her last scheduled news briefing at FDIC headquarters in Washington, May 24, 2011.

Credit: Reuters/Jonathan Ernst

NEW YORK (Reuters) - Sheila Bair, the plain-talking and heat-seeking former head of the Federal Deposit Insurance Corporation, doesn't waste any time letting the reader know where she stands in her colorful and hard-hitting new memoir of the 2008 financial crisis.

On the second page of "Bull By The Horns: Fighting To Save Main Street From Wall Street And Wall Street From Itself," Bair draws a captivating sketch of a meeting on October 13, 2008, packed with worried Wall Street titans.

Bair describes Citigroup CEO Vikram Pandit as "a hedge fund manager by occupation and one with a mixed record at that;" Bank of America CEO Kenneth Lewis a deal maker whose "skills were clearly wanting;" and Timothy Geithner, then head of the New York Federal Reserve Bank, as someone who "just couldn't see things from my point of view. He never could."

This was the famous meeting in which Secretary of the Treasury Hank Paulson ordered top U.S. bank CEOs to accept $125 billion of taxpayer money to fortify their banks and submit to government regulators as the U.S. financial crisis was shaking the economy to its foundations.

The vignette is a microcosm of the book. Bair recalls her years of battles with both financial interests and fellow regulators before, during and in the aftermath of the crisis.

Her voice and presence as The Woman alive and kicking in the high-testosterone world of Wall Street's - and Washington's -- masters of the universe adds spice to the tale throughout.

"I suspected that gender bias would frequently creep into media coverage of me, and frankly, it cut both ways," Bair writes. "I have no doubt that my ability to garner press coverage was enhanced by the fact that a woman heading a major financial agency was rare and a woman so visibly and publicly asserting herself against male colleagues even rarer."

Bair, who took over FDIC in 2006 and pushed it into an activist scrutiny of subprime mortgages and other warning signs of the crisis, says she still wrestles with the moral implications of bailing out "too big to fail" banks.

"The system did not fall apart, so at least we were successful in that, but at what cost?" writes the Kansas-born Bair. "We used up resources and political capital that could have been spent on other programs to help more Main Street Americans .... It worked, but could it have been handled differently? That is the question that plagues me to this day."

Bair's narrative outlines the wider context she believes both enabled the financial markets meltdown and inhibited more effective regulation once the system was stabilized.

Along with Fed chairman Ben Bernanke, Paulson and his successor Geithner, Bair was at the epicenter of efforts to right the teetering system whose trillion dollar shadow markets of derivatives had frozen money markets in fear.

At bottom, she says, the "deregulatory dogma" championed for a decade by Fed Chairman Alan Greenspan and Bill Clinton-era Treasury Secretary and former Citi board member Robert Rubin had rendered government oversight as passé.

"Both government and the private sector had become deluded by the notion that markets and institutions could regulate themselves," writes Bair, who was appointed by George W. Bush and says she is a lifelong Republican. "Government and its regulatory function were held in disdain."

Geithner, in Bair's accounting, embodied this "insider" and deregulatory culture.

During the crisis she says he stayed obsessed with helping Citi, behavior she traces to Rubin, Geithner's "mentor and hero" from their days in the Clinton Treasury Department.

Bair may still be obsessed by Geithner. Hardly a page goes by where Geithner, who quickly emerges as her wily arch nemesis, is not maneuvering behind Bair's back or criticizing her in person about her reform or enforcement ideas.

Geithner went "apoplectic," she writes, when Bair endorsed Wells Fargo's bid for Wachovia instead of Citi's FDIC-assisted bid; lectured her to be a "team player;" leaked stories to the press about her; and continually pushed for terms in bailouts that are more favorable to banks and their shareholders.

"Protecting taxpayers wasn't Tim's priority," she writes.

Bair writes about her own failures, such as losing out on creating a Resolution Fund to dismantle large banks in the Dodd-Frank financial reform bill.

But she also gives ample space to describing her own and the FDIC's accomplishments, whether allaying consumer fears while quietly closing hundreds of troubled banks or securing claw-back rules for executive compensation at large financial institutions or assisting Maine Senator Susan Collins's successful push for boosting capital requirements at banks.

"I believe that the Collins Amendment will stand as one of the crucial reforms of the Dodd-Frank Act," she writes with admiration for a fellow Republican woman.

"Margaret Thatcher once said that if you want something said, ask a man; if you want something done, ask a woman," Bair writes at another point.

Bair devotes nearly 30 pages to recommendations for further taming Wall Street. These include breaking up the biggest institutions; requiring securitizers to retain risk from the securities they create and sell; and taxing earned income and investment income at the same rate.

But Bair, who resigned from FDIC in 2011, clearly remains troubled by the financial crisis, from its origins to its aftermath. That includes especially the infighting and decisions made within the Bush and Obama administrations regarding the largest U.S. financial institutions.

"To this day, I wonder if we overreacted," she writes. "Yes, action had to be taken, but the generosity of the response still troubles me."

(Editing By Peter Bohan)