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.”
Notice in the photo below that Larry Summers is taking his usual nap...
While Geithner is just a monkey doing stupid human tricks.