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Sheila Bair On Geithner's Appointment: 'A Punch In The Gut'

Bair wanted Volcker to run Treasury, and bondholders to suffer losses. Geithner won on both counts.  This is a great read.


The second installment of Deal Journal’s look at Sheila Bair’s new book, Bull by the Horns.  Click here to read the first post.

Reprinted with permission.

Wall Street Journal

The rocky relationship between Bair and Treasury Secretary Tim Geithner is already the stuff of Washington legend.  But Bair has new details to enter into the lore.

Bair, for instance, urged the fledgling Obama administration to nominate former Fed Chairman Paul Volcker as its first Treasury Secretary.  Many of the officials calling the shots during the crisis were too cozy with Wall Street chiefs, Bair believed, and “we need more independent perspectives to deal with the substantial problems confronting the financial sector.”

The news that Obama had nominated Geithner instead “felt like a punch in the gut,” Bair writes.  “I did not understand how someone who had campaigned on a ‘change’ agenda could appoint someone who had been so involved in contributing to the financial mess that had gotten Obama elected.”

Shortly thereafter, news reports that Geithner was advocating for her dismissal led Bair to try to confront him at the New York Fed headquarters, her nine-year-old daughter in tow.  Geithner, Bair said, wouldn’t tell her to her face what his problems with her were.

Treasury declined to comment.

Overall, Bair attributes her clashes with Geithner to “a profound philosophical disagreement,” namely that Geithner opposed seeing bondholders at the mega financial institutions to suffer losses.  “I did,” Bair says.

She highlights a bad moment for Geithner when Obama starts getting pummeled in the press over the pending payout of $165 million in bonuses to employees at AIG.  Walking into the Oval office for a meeting with the president, Bair describes Geithner and White House economic adviser Larry Summers as looking “uncomfortable, their eyes downcast.”  Geithner had failed to warn the president about the bonus situation, Bair writes.  Now a visibly fuming Obama was asking her if she had any ideas on how to stop them being paid out.

“I wanted to say, just fire them,” Bair recalls, but settled on pitching her ideas on new powers for the FDIC to prevent taxpayers from having to bailout future AIGs.

Bair repeatedly hits the Office of the Comptroller of the Currency, or OCC, and its leadership as being a poor banking regulator, one that panders to the big banks it oversees rather than taking them to task.

She criticizes John Walsh, who served as the acting OCC chief for more than a year after John Dugan stepped down. Bair speculates that Geithner pushed Walsh as the acting head rather than longtime OCC lawyer Julie Williams, who’d previously held the temporary role between nominations, because Geithner “thought he could control [Walsh], while Julie – a smart, tough-minded lawyer – would be more independent.”

In her recommendations at the end of the book, she says the agency should be abolished.  She points to Citigroup and Wachovia – two of the biggest banks the OCC oversaw in the run up to the crisis – as evidence: both “would have failed had it not been for government interventions and, in the case of Citigroup, massive amounts of taxpayer aid.”

WSJ - Source


Part 1:

What Sheila Bair Really Thinks About Lloyd Blankfein



Notice in the photo below that Larry Summers is taking his usual nap...

While Geithner is just a monkey doing stupid human tricks.

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Reader Comments (12)

Sheila Bair: Geithner Skewed Bailout To Save Citigroup

Sep 27, 2012 at 2:59 PM | Registered CommenterDailyBail
More from Bair's book:

What Sheila Bair Really Thinks About Wall Street CEOs


"Tim Geithner and Vikram Pandit were in constant communication during the crisis, and they were figuring out what they were going to do and then trying to jam it on me."
Sep 27, 2012 at 3:00 PM | Registered CommenterDailyBail
David Stockman just tears into Bernanke. Calls him a "lunatic academic" more dangerous than Geithner, Summers and Paulson combined. Most economists and policy wonks bloviate about the financial crisis, but Stockman actually knows what he's talking about. Just an amazing level of detail. You'd almost think he reads the Bail.

Anyhow, great talk from Stockman.

Sep 27, 2012 at 9:53 PM | Unregistered CommenterPitchfork
Note that in the second photo Summers wakes up for a brief moment to have another doughnut. Classic.
Sep 28, 2012 at 11:26 AM | Unregistered CommenterPitchfork
NO QUESTIONS HIS FELLOW CONSPIRATORS FELT GEITHNER WAS THE WEAK LINK in their conspiracy to bring down, LOOT & PILLAGE Bear Stearns & Lehman Brothers. Paulson, Rubin, Prince & Grewenspan were deathly afraid Geithner's tax problems (lateness) prior to his appointment would exposed them all. Geithner was late because he had to hide all the 100'S OF MILLIONS he got for doing nothign as NYC Fed Bank head when the 2 firms were KILLED by Dimon - Paulson & Co. But he's turn out to be a good 'Made Man' working with his co-conspirators on the inside/government side. He's done great, don't you think, at LOOTING AMERICA for his BOYS?! Obama had to just sit there and watch it happen and do NOTHING! TRULY, 'THE SPOOK WHO SAT BY THE DOOR'...Funny how no one's EVER talked about phone logs!!
Sep 28, 2012 at 12:41 PM | Unregistered CommenterJosephConrad

Stockman's speech was outstanding.That bit about the S&P500 gains since 1994--80%+ of which comes from 24-hour periods before FOMC meetings--blew me away. I knew about the tech bubble, and about the housing bubble. Oh shit, I forgot about the... hot air bubble? Wtf? And didn't zh run articles maybe 2 years ago about the bulk of market gains occurring as the result of after-hours trading?

Stockman does a nice job explaining how the yield curve is manipulated to hell and back as well.

Stockman also refers to the book he's been working on early in the speech. He's been talking about that damn book for awhile now. (Not that I have any room to complain given a certain film I've been working on; then again, I don't have a publisher/distributor and can say to a certainty I'll release my lovechild in a week.) Apparently his book takes aim at the myth of the great credit seize-up that supposedly justified TARP. If Stockman's not a Bail reader, he really should be.

The best thing about Stockman is his complete unpredictability. I'm surprised TPTB allow the man to go anywhere near a microphone, but when they do I've got my notepad ready...
Sep 28, 2012 at 3:04 PM | Unregistered CommenterCheyenne
"Apparently his book takes aim at the myth of the great credit seize-up that supposedly justified TARP. If Stockman's not a Bail reader, he really should be."

Holy credit freeze, Batman! I had not idea that was the focus of his book. That's the book that really needs to be written (or one like it) -- how TARP was a hoax that fixed nothing and how the end-of-the-world scenarios were nothing but lies (no matter how much Tim Geithner really believed they were true).
Sep 28, 2012 at 5:42 PM | Unregistered CommenterPitchfork
Sep 28, 2012 at 7:45 PM | Unregistered CommenterDailyBail
I'm going from an interview of Stockman in May where he said this:

"That is one of the great myths that I address in my book. The banking system, especially the mainstream banking system, was not in peril at all. The toxic securitized mortgage assets were not in the Main Street banks and savings and loans; these institutions owned mostly prime quality whole loans and could have bled down the modest bad debt they did have over time from enhanced loan loss reserves. So the run on money was not at the retail teller window; it was in the canyons of Wall Street. The run was on wholesale money—that is, on repo and on unsecured commercial paper that had been issued in the hundreds of billions by financial institutions loaded down with securitized toxic garbage, including a lot of in-process inventory, on the asset side of their balance sheets."

Sep 28, 2012 at 8:35 PM | Unregistered CommenterCheyenne
Hadn't seen that interview, Cheyenne. Stockton really understands this stuff. And he was, once upon a time, a Congressman! Things have changed a bit in the 30 or so years since he was in office. Fiscal Jesus, Paul Ryan, can barely tie his own shoes by comparison.

DB, I had forgotten that piece. If memory serves, I sent that directly to some of the reporters we skewered in the post. It's nice to have some of your points corroborated by an establishment figure like Stockton.
Sep 28, 2012 at 9:11 PM | Unregistered CommenterPitchfork
Anybody want to get on an airplane with this guy?
Sep 30, 2012 at 10:04 AM | Unregistered CommenterSKINFLINT
David Stockman I mean.
Sep 30, 2012 at 10:08 AM | Unregistered CommenterSKINFLINT

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