Is FDIC's Sheila Bair Starting to Get It?

Bair starting to 'get it'? One wonders....

Oct. 29 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair, breaking with the Obama administration, said U.S. financial companies should prepay into a fund the government would use to unwind large failed firms.

Congress should set up a Financial Company Resolution Fund and force institutions with more than $10 billion of assets to pay before a firm collapses, Bair said in testimony prepared for a House Financial Services Committee hearing today. Investors in failed companies also should take losses, she said.

Getting a little religion here, Sheila?

Let's review, however, history. Recent history.

Preservation of the legal strictures of capital structure is very important in order for investors to have a reasonable expectation of consequence in the event of a failure - and thus be able to price risk.

But this foundational principle - the sanctity of contract and capital structure - has been roundly abused and flatly ignored by the government since this crisis began.

Chrysler, GM, a plethora of banks including Lehman, Bear and others - in exactly none of these circumstances has the capital structure remained unmolested. The abuses in GM and Chrysler's cases, in particular, were ridiculously egregious that one simply can't make the argument that there is in fact a distinction between "Senior" or "Secured" and unsecured bondholders any more.

Never mind events such as Indymac Bank's failure - the bank holding company and bank itself were effectively asset-stripped by government fiat, leaving the supposedly-super-senior claims - those of depositors who had more than the insured limit on deposit with the bank - with absolutely nothing against which to recover.

The draft legislation creates a council of regulators, including the FDIC, to monitor companies and the economy for systemic risk. While Bair supports the concept, she said the proposed council “currently lacks sufficient authority to effectively address systemic risks.”

Congress should require a presidential appointee as the council’s leader to ensure its independence and set an odd number of members to avoid deadlocks, Bair said.

I agree. That appointee needs to be a publicly-vetted and appointed person with Senate confirmation. Since this is inherently a function of protecting the public purse, it must NOT fall to an unaccountable person such as Bernanke, who has shown repeatedly that he has not and will not enforce the regulatory strictures even when so demanded by black-letter law, and that Congress will not place him - or you - in the dock when you willfully and intentionally ignore the law.

Bair and lawmakers have said a lack of a mechanism for shutting large firms in an orderly way led to ad hoc programs, such as the $700 billion taxpayer bailout used by lenders including Citigroup Inc. and Bank of America Corp.

There is such a system - you just don't like it and therefore have willfully and wantonly ignored it. It is called bankruptcy and in fact the regulation of same is one of the enumerated powers in The Constitution delegated to the Legislature (Art 1 Section 8)-

To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;

How can appointed Federal Officials manage to be installed in their offices without reading the Constitution, say much less understanding it?

This is a good start, Sheila - now let's see you enforce "Prompt Corrective Action" and close each and every bank that has a negative ratio of assets to liabilities on a market-price basis, so that the disasters we've seen over the last two years with 20, 30, 40% or more losses to the Deposit Insurance Fund stop happening.

Oh wait - that would mean you'd have to close some of those "really big banks" here and now, wouldn't it? It would also mean you'd have to take out that pile of trash called "GMAC", which after huge infusions of taxpayer capital is still trying to grab more to remain alive, while running national advertisements under their name "Ally Bank" for above-market rate CDs!

Hmmmmm...

Comments

[bindlepete:]

Sheila is a toughie and has some sense of integrity. In short, let those that meade the mess clean it up and pay for the damage.

None of this "the bonus boys deserve their swag" for making phony profits on the government's largesse. They deserve to pay.

Oct 29 10:41 AM

[Michael Clark:]

I like Sheila more than anyone else in this administration. I think she does get it, although she's pushing on a seemingly immovable object.

Oct 29 10:46 AM

[Leftfield:]

At least she's talking closer to the truth. Compared with what, however?
There couldn't be a more black and white directive in the Constitution than the enumerated power, "and uniform laws on the subject of bankruptcies in the United States."
The founders were certainly not unaware of the role favoritism plays in the usurpation of legitimate property rights and thus, power, towards tyrannical control by cheats and scoundrels such as we have now.

Oct 29 12:11 PM

[Buckoux:]

"How can appointed Federal Officials manage to be installed in their offices without reading the Constitution, say much less understanding it?"

That's really a profound and pertinent question. The language of the Constitution is "assumed" by most Americans, rather than truly comprehended. "Rights, powers, privileges and immunities" are all equal in the minds of our citizens, even those with advanced degrees and yet they all have different meaning within its text and context. The US Constitution is an elegant document and as worthy of study as is Holy Word or Shakespeare. And, we'd be a better country for it!

Oct 29 12:32 PM

[Peter Franks:]

"How can appointed Federal Officials manage to be installed in their offices without reading the Constitution, say much less understanding it?"

No one in the Obama administration from the president on down, reads, knows about or cares about the Constitution. This rogue administration is purposefully trying to destroy the economy in order to destroy the country which will allow them to replace the republic and capitalism with their Marxist dream.

Oct 29 01:11 PM

[optionsgirl:]

Leftfield, I give you enough "spiritual" thumbs up to equal TARP for what you've said here.


On Oct 29 12:11 PM Leftfield wrote:

> At least she's talking closer to the truth. Compared with what,
> however?
> There couldn't be a more black and white directive in the Constitution
> than the enumerated power, "and uniform laws on the subject of bankruptcies
> in the United States."
> The founders were certainly not unaware of the role favoritism plays
> in the usurpation of legitimate property rights and thus, power,
> towards tyrannical control by cheats and scoundrels such as we have
> now.

Oct 29 02:32 PM

[optionsgirl:]

Dear Peter: Obama read the consitution. He taught constitutional law, did he not? It is not ignorance, it is deliberate deconstruction. Don't underestimate him.


On Oct 29 01:11 PM Peter Franks wrote:

> "How can appointed Federal Officials manage to be installed in their
> offices without reading the Constitution, say much less understanding
> it?"
>
> No one in the Obama administration from the president on down, reads,
> knows about or cares about the Constitution. This rogue administration
> is purposefully trying to destroy the economy in order to destroy
> the country which will allow them to replace the republic and capitalism
> with their Marxist dream.

Oct 29 02:33 PM

[Freya:]

OG: Thanks for leading me into that MF insta. I read the Entire Q&A portion from the Transcript. Its amazing what you can learn from those puppies.

The big LNG project that COP has spent Billions on? Hasn't left the Station. They are going to wait and see if it will be a Viable investment.

Next Year, 1st, 2nd qtr, who knows. They are going to develop the properties thay already own.

On Lukoil, you have to read the actual Answers, Mulva may have slipped up, another Officer broke in to answer the Question as Mulva was speaking.

Very interesting to say the least.

Oct 29 02:48 PM

[Peter Franks:]

Optionsgirl: As a technical point you are correct that Chairman Obama has read the Constitution and did "teach" it for a time. I shudder to think how many minds he was able to poison in that forum. I should have been more concise in my comment concerning Pelosi's president.

The meaning I meant to convey was that neither he nor any of his minions, or the congress for that matter, are interested in the Constitution. They have not / are not following it on any given day. This entire government is no longer "legal" within the bounds established by the founders, passing laws without any Constitutional authority behind them. As far as I am concerned those laws have no binding authority over the citizens of this nation, you will find that I and others have no intention of complying with or funding them.

Your warning is wise, no one should under estimate this Marxist president or the evil intentions of his administration, he is intentionally destroying the country by destroying our economy.

Dear Peter: Obama read the constitution. He taught constitutional law, did he not? It is not ignorance, it is deliberate deconstruction. Don't underestimate him.

Oct 29 03:30 PM

[lynnybee:]

How correct you are...... DO NOT UNDERESTIMATE them. Woe be to the American people who are not paying attention.


On Oct 29 02:33 PM optionsgirl wrote:

> Dear Peter: Obama read the consitution. He taught constitutional
> law, did he not? It is not ignorance, it is deliberate deconstruction.
> Don't underestimate him.

Oct 29 06:11 PM

[Leftfield:]

Wow, thanks OG!!!!
Great point; Obama taught Constitutional law. He is not trampling it due to ignorance.

Oct 29 09:57 PM

[Bill S. Friend:]

Failure of our current system is the only hope for return to government framed by the Constitution. An audit of the Fed should reveal the Wizard of Oz behind the curtain. www.ronpaul.com/on-the.../

Oct 29 10:46 PM

[Dialectical...:]

This President is so NOT MARXIST and I get so tired of reading from people that he is. Anyone who says such a thing really doesn't understand Marxism. This could be called corporate communism where profit is privatized but loss is absorbed by the state (read taxpayer). Nationalization of industry in the Marxist sense would NOT have private citizens at the major banks reaping 100 million dollar salaries. Marxist socialism hasn't worked for lots of reasons, but it has never involved paving the way for the big multinationals to hold on to their profits at the expense of the taxpayer. Obama may have an agenda and it may be harmful to the nation (you can certainly make that point) but the name of this beast is not Marxism. This is a new animal not yet seen in these woods. It's not free market capitalism, I think that much is clear...

On Oct 29 03:30 PM Peter Franks wrote:

> Optionsgirl: As a technical point you are correct that Chairman Obama
> has read the Constitution and did "teach" it for a time. I shudder
> to think how many minds he was able to poison in that forum. I should
> have been more concise in my comment concerning Pelosi's president.
>
>
> The meaning I meant to convey was that neither he nor any of his
> minions, or the congress for that matter, are interested in the Constitution.
> They have not / are not following it on any given day. This entire
> government is no longer "legal" within the bounds established by
> the founders, passing laws without any Constitutional authority behind
> them. As far as I am concerned those laws have no binding authority
> over the citizens of this nation, you will find that I and others
> have no intention of complying with or funding them.
>
> Your warning is wise, no one should under estimate this Marxist president
> or the evil intentions of his administration, he is intentionally
> destroying the country by destroying our economy.
>
> Dear Peter: Obama read the constitution. He taught constitutional
> law, did he not? It is not ignorance, it is deliberate deconstruction.
> Don't underestimate him.

Oct 30 12:09 AM

[Freya:]

Socialism in Marxist Theory

Karl MarxThe Marxist conception of socialism is that of a specific historical phase that will displace capitalism and be a precursor to communism. The major characteristics of socialism (particularly as conceived by Marx and Engels after the Paris Commune of 1871), are that the proletariat will control the means of production through a workers' state erected by the workers in their interests. Economic activity is still organised through the use of incentive systems and social classes would still exist but to a lesser and diminishing extent than under capitalism.[23] For orthodox Marxists, socialism is the lower stage of communism based on the principle of "from each according to his ability, to each according to his contribution" while upper stage communism is based on the principle of "from each according to his ability, to each according to his need"; the upper stage becoming possible only after the socialist stage further develops economic efficiency and the automation of production has led to a superabundance of goods and services.[24][25]

Personally, I can easily connect the dots.

Oct 30 02:51 PM

[Dialectical...:]

That's my point. This is so far away from a "workers' state" unless one means those who work at Goldman Sachs... Again, I'm not saying all is well, just that it is a power grab from the top, not some sort of glorified workers' revolt.


On Oct 30 02:51 PM Freya wrote:

> Socialism in Marxist Theory
>
> Karl MarxThe Marxist conception of socialism is that of a specific
> historical phase that will displace capitalism and be a precursor
> to communism. The major characteristics of socialism (particularly
> as conceived by Marx and Engels after the Paris Commune of 1871),
> are that the proletariat will control the means of production through
> a workers' state erected by the workers in their interests. Economic
> activity is still organised through the use of incentive systems
> and social classes would still exist but to a lesser and diminishing
> extent than under capitalism.[23] For orthodox Marxists, socialism
> is the lower stage of communism based on the principle of "from each
> according to his ability, to each according to his contribution"
> while upper stage communism is based on the principle of "from each
> according to his ability, to each according to his need"; the upper
> stage becoming possible only after the socialist stage further develops
> economic efficiency and the automation of production has led to a
> superabundance of goods and services.[24][25]
>
> Personally, I can easily connect the dots.

Oct 30 03:09 PM

[optionsgirl:]

Dialectical: I don't doubt your definitions are correct, but the net effect was to nationalize banking and car manufacturing, with (health) insurance next in their sights! Call it what you like, all backstopped by theft through taxes.

Oct 30 03:32 PM

[Dialectical...:]

I don't disagree, OG. The taxpayers have been robbed. Under normal nationalization though there are corporations crying bloody murder over the seizure of their money and profits. The difference here is that the nationalized businesses are dancing a jig and paying out billions in bonuses. That makes it a new animal in my book, and a whole new way for the ruling class to take a piss on the working class.

On Oct 30 03:32 PM optionsgirl wrote:

> Dialectical: I don't doubt your definitions are correct, but the
> net effect was to nationalize banking and car manufacturing, with
> (health) insurance next in their sights! Call it what you like, all
> backstopped by theft through taxes.

Oct 30 04:46 PM

[Freya:]

Both of you are splitting hairs. My dots connected say Socialism with a predeliction for parts of Communism. I saw Hannity last night, one of the audience members rather specifically wanted this portion:

"from each according to his ability, to each according to his need"

She felt that Obama was on the right track to accomplish this.

Oct 30 04:51 PM

[Dialectical...:]

I don't mind that sentiment. I have met few rational people that wouldn't want to do a better job of caring for the needy. The problems include
- If no one works, everyone is needy and no one will work if they don't see any rewards from their labor.
- Who decides who is needy and who is just lazy disguised as needy?

And this is really my problem with what has been happening with corporations taking over the way government is run (going back to the days of big oil and big railroad with few bumps along the way)... Socialism was devised as a way to replace the inequities of capitalism, and just because that doesn't work shouldn't mean we all turn a blind eye to the inequities of capitalism. Free market capitalism works great in theory, but it seems to have shown a tendency to be corrupted as power and wealth accumulate (and it becomes some sort of "manipulated market capitalism"). I am not advocating socialism by saying this, but what we have now is not working well. If we could return to (or achieve) a time when hardwork was rewarded and laws applied equally to all, who could have a problem with that except those who benefit from inequities now? (I include both the very rich and very lazy in the pool of those who benefit unfairly in our present system.)

And you're right, I don't want to split hairs. Wherever we're headed it seems like it's not where we would like to be.

On Oct 30 04:51 PM Freya wrote:

> "from each according to his ability, to each according to his need"

Oct 30 07:58 PM