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FDIC And Its Trail Of Irresponsible Actions (Part III Of III)


According to FDIC’s website, “ six core values,” including integrity, competence, teamwork, effectiveness, accountability, and fairness, “ guided” the agency “ in accomplishing its mission.”

What integrity did Bair show in her statements and actions?  Not when she tried to convince various pension funds to participate in PPIP by claiming program " is likely to generate a 'healthy profit' for taxpayers and investors." Somehow she forgot to mention FDIC's own auction clearing price actually deteriorated down to 46.4% in March, from 49.3% in January and Februrary.

Definitely not in her quest to remove Citigroup management by influencing rating agencies because she was unhappy with the bank's progress.  Now that FDIC was in trouble, maybe we could change its management too.  It was despicable that the agency tried to cover up its lack of funding by not seizing zombie banks, leading to further depreciation of toxic assets that ended up costing FDIC even more money.

And certainly not in the Wachovia-Citigroup deal.  I disagree with anyone who argued that she was right for secretly encouraging Wachovia to sell itself to Wells Fargo because it saved FDIC money.  How many of you thought breaking even a casual promise was ethical, not to mention this one actually affected a big part of the financial system?  How much money did retail investors lose that day when news broke with the original sale of Wachovia for mere $1 per share to Citigroup, all because she insisted that a deal must be reached over a weekend?  Who gave her the authority to back over $300 billion of Wachovia toxic assets at the expense of American taxpayers?
Then there were those bidding processes with sharing loss Bair conducted in secret, as well as regulator imposed deadlines she ignored, while telling the same troubled banks to raise capital and find buyers.  Such actions, implicit of taxpayer support because of limited FDIC funding and without Congressional approval, were especially detrimental to many smaller banks that were important to their communities.  By hindering their effort to remain operative and independent, FDIC weakened local economy as drastic losses of jobs and businesses generally ensued. 

Washington Mutual- seized and sold SEPTEMBER 25, 2008
"For his part, Fishman wanted to find out more about the SEPTEMBER 30 sale deadline the FDIC had imposed several days earlier"

First Bank of Idaho- seized and sold APRIL 24, 2009
"U.S. Reps. Mike Simpson and Walt Minnick sent letters Friday... OTS gave the bank until JUNE 30 to raise $10 million and bring its capital level to 12 percent.  But regulators moved to shut down the bank before that June deadline, shocking bank executives who contend they had investors lined up to give the bank a cash infusion and clear millions in bad loans... On April 24, the OTS appointed the FDIC receiver of the bank, and more than 60 FDIC officials seized it.  US Bank officials moved in that same day"

Accountability?  What accountability?  FDIC had shown very little transparency.  In fact, it was reported that “this year the Federal Deposit Insurance Corporationabruptly decided to limit the flow of information.”
“Questions Arise As FDIC Fails To Disclose Key Details on Bidders For Failed Banks… The federal agency charged with resolving failed banks and selling their assets is hiding key details about the transactions.  The identities of losing bidders and the prices they've offered for failed bank assets are some of the details currently not being fully disclosed. For decades, this information was publicly available”
By the way, did Bair ever explain why Wamu was seized besides the fact that the bank faced liquidity pressure?  At the time of seizure, Wamu (Tier I Capital Ratio of 8.4% and a TCE Ratio of 7.8%) was well-capitalized and solvent.  Wamu’s “retail deposits as of August 31 were ‘essentially unchanged’ from $143.6 billion at the start of the year.”  Its parent company, Washington Mutual Inc., also had $4 billion in deposit.

Remember Bair wrote rules for private equity groups interested in buying failed banks, including one that “ required investors that own other banks to provide cross-guarantees?” 
So what happened here?  Why was Washington Mutual Holding not able to provide temporary liquidity to Wamu?
Oh, I forgot.  Our wise FDIC chairwoman didn’t even know Wamu’s parent company had these billions in deposit, even though she fought ferociously for the power to resolve bank holding companies.
Finally, Bair blatantly ignored “fairness” on many occasions.  She seized Wamu for facing liquidity pressure but then immediately launched the bond guarantee program to help banks improve liquidity.  She wiped out Wamu bondholders but saved Wachovia’s.  

In addition, there had been dramatic variances on the length of time FDIC spent on each receivership.  FDIC took "time to line up as many bidders" for " a potentially valuable franchise" like BankUnited, but with billions of investments and thousands of jobs at stake, how long did Bair spend on Wamu?  Considering the agency spent merely hours to reach its least cost solution, no wonder Jamie Dimon boasted JP Morgan "could have gotten [Wamu] for $1."
Here was the latest instance of nepotism, and in tune with her true preference regarding bank consolidation:

"In bid for Guaranty Bank, FDIC gave foreign bank an edge"

It was ridiculous that any time Bair did something "unpopular," her fans immediately jumped up and argued she was being forced to do so. Geithner couldn't force her to save CIT, could he?  She was the one who refused to back CIT bonds.  Yet she was wiling to help JP Morgan, the same bank that BusinessWeek found “snipping credit lines for small businesses,” sell bonds via TLGP, a program, as mentioned earlier, that was supposed to help increase liquidity and lending.
Just as unfortunate, nobody bothered to tell you that she spent millions on FDIC's 75th anniversary, planned to move her agency to a more expensive area to save commute, in addition to wasting billions testing her loan modification program at IndyMac with the FDIC reserve, funds that were supposed to be used for deposit protection.

In the meantime, blogs after blogs were written questioning her effectiveness as the FDIC director:
“Now, the congressionally mandated minimum reserve ratio for FDIC is 1.15%.
With that in mind, please take a look at this table. It shows the DIF balance and DIF-insured deposits over the 3 years, and the reserve ratio calculated from the two numbers. The reserve ratio dipped below the mandated minimum in the 2nd quarter of 2008, well before the banking crisis hit in earnest in September.

Why didn't the chairwoman act then... why does Bair still refuse even now to recognize this 0.22% reserve ratio as danger beyond critical stage and refuse to use the line of credit?
She just keeps repeating the mantra ‘No one has lost the money with us’”

"FDIC is advocating using taxpayer money to endorse and guarantee legacy loan sales as part of the PPIP in the 80/90 cents on the dollar range, continue selling performing commercial loans at about 50% off their book value.  Ms. Bair's hypocrisy continues to amaze"

Again, most likely you wouldn’t see these criticisms from mainstream media.  Instead, this was what you would be reading:
“The Case Against a Super-Regulator”
Of course the public remained enamored with Bair.  Everyone was against the “evil Fed” becoming the supreme power!
Then again, Bair’s council idea was just as stupid, because what would you call SEC, OTS, OCC, FDIC, and the Fed?

I sincerely believe Sheila Bair must be replaced as soon as possible.  Under her leadership, one of the most important government agencies ever created to protect taxpayers self-destructed by taking on risks it could not afford, as well as by not focusing on properly executing its mandated missions to protect deposits, supervise the financial industry, and manage receivership.

"Perhaps Bair and the FDIC someday might see fit to deliver a full account of how the agency managed to mess itself up this badly.  The country deserves an explanation"

In trying times, America needs an intelligent and honest individual, not a self-serving and power hungry politician such as Bair, to protect trillions of our deposits that we have worked so hard to earn, not just for our sake but also that of our future generation.