One Question for Sheila Bair

Paul Solman is taking questions for Sheila Bair. If I could ask her just one question, it would be about her actions taking over WaMu and wiping out all its senior unsecured debt. That’s the wholesale interbank market right there, and in the wake of the WaMu collapse, banks pretty much stopped lending to each other, fearful that at any point Bair could step in and wipe out billions of dollars in assets. The ensuing credit crunch was responsible for trillions of dollars in stock and bond-market losses, and Tim Geithner, for one, was furious at Bair for her precipitous decision.

So the question is this: was the WaMu intervention a mistake, given the knock-on effects it had on the broader economy? Or, more generally, is there anything Bair would do differently, in hindsight?

Bair’s a political beast, and I suspect she’ll brazen it out, saying that her WaMu decision was the right one. But that would put her in the dubious company of all the other executives who feel they have nothing to apologize for. Is it too much to hope that she might show a glimpse of humanity or fallibility?

Comments

[BoneYard:]

Felix, the WaMu move was criminal, pure and simple and shows our regulators have no understanding (or worse, concern) for the fallout or implications of their decisions.

A second question for Ms. Bair might be, how do you force the sale of Wachovia without informing the board or the CEO. I won't even touch the fact she tries to get the deal done with Citi (that shows her understanding of the financial condition of the entities she is charged with overseeing/regulating). Imagine selling Wachovia to Citi - Wachovia was in better shape.

Nov 13 09:49 AM

[Moon Kil Woong:]

Sheila bair did right. There is not suppose to be free lunches. If you lend to a crap company be prepared for getting nothing. The simple fact that people figure you can lend to any bankrupt financial organization and be made whole on the public's dime must stop. Congrats to her. Geithner is a toe kissing Treasurer who is too linked to the Federal Reserve to call himself independent.

Nov 13 11:52 AM

[bindlepete:]

I'm with Shelia. First wipe out the equity and then the unsecured debt. Regular rules. We'd be well through this mess if we collapsed the insolvent banks/institutions and fired the management and let the straight investors recapitalized them. The game layed as it was is far from over and we wouldn't have to continue to subsidze the failures and pay outrageous bonuses with 'Ol Aunt Mini's savings.

We still have a very long way to go with the commercial loans/real estate and further failures in the adjustable rate home mortgages. I would most of all like to get rid of the give away of banks borrowing at .25% and then buying Treasury Instruments at multiples of this with the new capital we " Gave" them. Straight fraud.

Nov 13 04:09 PM

[PPY:]

Do you consider GMAC a crap?

If you do, then bondholders who just lent another $2.9 billion to this "crap" last week via TLGP will "not get nothing,"

FDIC will pay them because it is backing those bonds.


> Sheila bair did right. There is not suppose to be free lunches. If
> you lend to a crap company be prepared for getting nothing. The simple
> fact that people figure you can lend to any bankrupt financial organization
> and be made whole on the public's dime must stop. Congrats to her.
> Geithner is a toe kissing Treasurer who is too linked to the Federal
> Reserve to call himself independent.

Nov 14 05:09 AM

[PPY:]

Then why did she decide to save Wachovia bondholders?

Where was the consistency?

Even more ridiculous, FDIC is now backing over $300 billion of bank bonds.

If Citi were to tank today, does Bair plan to wipe out TLGP bondholders and then pay them with FDIC money?

*imho*


On Nov 13 04:09 PM bindlepete wrote:

> I'm with Shelia. First wipe out the equity and then the unsecured
> debt. Regular rules. We'd be well through this mess if we collapsed
> the insolvent banks/institutions and fired the management and let
> the straight investors recapitalized them. The game layed as it was
> is far from over and we wouldn't have to continue to subsidze the
> failures and pay outrageous bonuses with 'Ol Aunt Mini's savings.
>
>
> We still have a very long way to go with the commercial loans/real
> estate and further failures in the adjustable rate home mortgages.
> I would most of all like to get rid of the give away of banks borrowing
> at .25% and then buying Treasury Instruments at multiples of this
> with the new capital we " Gave" them. Straight fraud.

Nov 14 05:16 AM

[countrybanker:]

PPY. Yes, huge inconsistency in the banking sector last eighteen months. The reason their is inconsistency is because decisions were made ad hoc.Everyone in America understands debtor-creditor law and bankruptcy. Investors in unsecured debt on banks knew they get nothing in a failure. Policy makers then and now understand right and wrong. They all understand Americas capitalism, winners and losers and free enterprise. The inconsistency comes when they strayed from what they knew was correct, fair and the American system of the rule of law.

WaMu was broke and the unsecured debtholders will win nothing in a lawsuit. Bair will prevail.

Bair did not use FDIC funds to pay Wachovia unsecured debtholders. WFC is paying them, not FDIC. Bair was consistent.
Still, the Treasury tax ruling was a gift from the taxpayer, so net,net the transaction was not correct,right or fair.

Nov 15 05:53 PM

[PPY:]

No, this was the original Wachovia-Citi deal set up by the FDIC and she chose to save WB bondholders by sharing losses instead of wiping them out like she did with Wamu ones:

"Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp... The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. "
blogs.wsj.com/economic.../

I won't even get into how she determined Citi was strong enough to "rescue" Wachovia...

*imho*
On Nov 15 05:53 PM countrybanker wrote:

> PPY. Yes, huge inconsistency in the banking sector last eighteen
> months. The reason their is inconsistency is because decisions were
> made ad hoc.Everyone in America understands debtor-creditor law and
> bankruptcy. Investors in unsecured debt on banks knew they get nothing
> in a failure. Policy makers then and now understand right and wrong.
> They all understand Americas capitalism, winners and losers and free
> enterprise. The inconsistency comes when they strayed from what they
> knew was correct, fair and the American system of the rule of law.
>
>
> WaMu was broke and the unsecured debtholders will win nothing in
> a lawsuit. Bair will prevail.
>
> Bair did not use FDIC funds to pay Wachovia unsecured debtholders.
> WFC is paying them, not FDIC. Bair was consistent.
> Still, the Treasury tax ruling was a gift from the taxpayer, so net,net
> the transaction was not correct,right or fair.

Nov 15 06:56 PM

[PPY:]

The bottom line is, FDIC't top priority is deposit protection. Ms. Bair should have asked for TARP money to build up its DIF ratio and reserve balance, instead of requesting an additional $500 billion from Congress. She should never have involved her agency in TLGP or PPIP.

Wachovia suffered an earlier demise expedited by FDIC's decision to wipe out Wamu bondholders, yet Ms. Bair insisted that a huge bank like WB had to be sold that weekend while refusing to grant more time for due diligence to a very interested WFC.

Was FDIC even the federal regulator for Wamu, Wachovia, Citi, or Well Fargo?

No.

*imho*

Nov 15 07:25 PM