Sheila Bair: 'Tim Geithner Was Bailouter-In-Chief'

'The two banks that were clearly insolvent were Citigroup and Merrill.'

Sheila Bair PBS Newshour interview.

• Transcript at PBS

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Web Extra:

This portion was not broadcast, and is perhaps the better of the 2 clips.

Here's what we've learned so far from Bair's book:

• John Thain's only concern was getting paid.
• Robert Rubin was secretly in charge of TARP.
• Citigroup and Merrill were both insolvent.
• Bair wanted Volcker for Treasury Secretary.
• Geithner really loves Citigroup.
• Blankfein wasn't playing team ball until Bair called Buffet to complain.

Comments

[LadyLiberty]

‘The Biggest Kiss’
Mitt Romney was right: Dodd-Frank is a gift to big banks

http://www.weeklystandard.com/articles/biggest-kiss_655091.html

[DailyBail]

LL

That has been the line from the GOP since day 1. I posted the story of Frank Luntz admitting that it wasn't true but pushing the talking point regardless. Dodd-Frank most certainly has hurt Wall Street. Do you watch the stock prices? Goldman and Morgan Stanley share prices reflect a future that is not very bright. The prop-trading rules are pissing everyone off. That is why there is such a push to roll back Dodd-Frank.

You're getting sucked straight into their vortex of bullshit. Think about it logically for a minute. Why would they be complaining so much about something that you are implying is helpful to them?

Now, Dodd-Frank is not perfect, and we could have written better legislation in 3 pages vs. 2,000. And in many ways it is very weak. No leverage limits, etc. But don't get sucked down this rabbit hole, as it leads straight to the top of Wall Street, where the #1 goal is to repeal Dodd-Frank.

[Cheyenne]

Bair's book is the 2nd in a trifecta of accounts BY GOVERNMENT INSIDERS that reveal the harm done to Main Street by Treasury Secretary Geithner working on behalf of Wall Street. (The 3rd is "The Payoff: Why Wall Street Always Wins," by Jeff Connaugton.) Thanks to Bair, we now know to a certainty that Geithner, who grew up in Asia and returned to the U.S. to major in Asian Studies, and thus has no real background in much of anything, was the toxic meat puppet of a hopelessly failed bank that wasted $250,000,000 on a zero like Vikram Pandit. That's just fucking great. And Congress, which is completely passive about Geithner's betrayal of the public, wonders why its approval ratings are at an all-time low. Incredible.

Interestingly, a Friday-night hatchet job on Bair that appeared in dailycaller.com drew the immediate ire of both Chris Whalen and Neil Barofsky in the comments section:

http://dailycaller.com/2012/10/19/sheila-bairs-bailout-blame-game/#comment-687942872

[DailyBail]

Interesting. Vern McKinley used to work for the FDIC and has written negatively about the bailouts in the past.

http://dailybail.com/home/wsj-what-could-bernanke-the-ny-fed-be-hiding.html

[Pitchfork]

I thought what McKinley wrote was actually quite fair. Yes, Bair is an honest, decent human being, with no small amount of courage and personal integrity (in D.C. terms, she's a freak), but McKinley is right about her rolling over (ultimately) and letting many of the bailout programs proceed. If I remember correctly (I do), Whalen was arguing in 2009 how FDIC could -- if they wanted -- take action against the Citi board (or Bof A) by going through the subsidiary banks, even though OCC or whoever was the primary regulator of the BHC. So Bair didn't take the kind of action that you or I or Steve or, perhaps Whalen himself, would have taken, but she's still better than all the rest in this story. Was McKinley's piece a hatchet job? Maybe it was intended that way, but the facts seem pretty straight to me, no matter how pissed off Barofsky may have been when he commented "get your facts straight." OK, now you can shoot me.

[DailyBail]

I agree Pitch. That's why I posted the Vern McKinley link. Bair wasn't perfect by any means. She should have had more moxie in her stand against Geithner. You captured the sentiment correctly, I think. McKinley is a good guy fighting for our side, and he used his editorial to point out that her record might not be as good as the game she talks now. But there is no question that Bair was a net positive.

http://dailybail.com/home/wsj-what-could-bernanke-the-ny-fed-be-hiding.html

A year ago we told you about former FDIC official Vern McKinley, who has made a series of Freedom of Information Act requests. He wanted to know what Fed governors meant when they said a Bear Stearns failure would cause a "contagion." This term was used in the minutes of the Fed meeting at which the central bank discussed plans by the Federal Reserve Bank of New York to finance Bear's sale to J.P. Morgan Chase. The minutes contained no detail on how exactly the fall of Bear would destroy America.

He also requested minutes of the FDIC board meeting at which regulators approved financing for a Citigroup takeover of Wachovia. To provide this assistance, the board had to invoke the "systemic risk" exception in the Federal Deposit Insurance Act, and it therefore had to assert that such assistance was necessary for the health of the financial system. Yet days later, Wachovia cut a better deal to sell itself to Wells Fargo, instead of Citi. So how necessary was the assistance?

The regulators have been giving Mr. McKinley the Heisman, but two weeks ago federal Judge Ellen Segal Huvelle made the FDIC show her the Wachovia documents. She is still considering the McKinley suit, but the crisis commission doesn't need to wait for her decision. It should let all Americans read them now.

[Cheyenne]

You mean to tell me McKinley is OPPOSED to bailouts? Well, now I feel like Gunnery Sergeant Hartman in Full Metal Jacket when he finds Private Pyle (Geithner) holding a rifle next to Joker (McKinley) in the latrine...

"Why are you not stomping Private Pyle's guts out?!!"

McKinley purports to twist one of Bair's best disclosures (“the lack of hard analysis showing the necessity of [the bailouts] troubles me to this day") as contradicting Bair's statement that she had no information on what the NY Fed was saying about Citi. (Whether the latter statement is completely credible is another issue.)

Bair's no-hard-analysis statement puts a knife to the achilles of TARP apologists, who've never pointed to ONE SHRED, NOT ONE SCINTILLA of evidence to prop up their bald conclusion that TARP was necessary. (Barofsky doesn't address the necessity of TARP in his book.)

With that statement, Bair has shifted the burden of proving the necessity of TARP, at least in the court of public opinion,back to where it belongs: onto its supporters, who after 4 years have utterly failed to muster ANY proof at all. If Bair can be faulted for her time at the FDIC, it's on exactly that basis: no hard proof of necessity, no FDIC help. Bair's a lawyer and should've recognized the procedural scam at work there. But at least she put it out there.

It's about fucking time.

[Vern McKinley]

Gentlemen: interesting discussion. Unfortunately I am not able to view the comments to which you refer? Can you send me a copy of the comments of Mr. Barofsky and Whalen, either through comment here or via email? Thanks, Vern McKinley

[DailyBail]

Vern

They are at this link:

http://dailycaller.com/2012/10/19/sheila-bairs-bailout-blame-game/#comment-687942872

Chris Whalen

Mr. McKinley's insinuation that former FDIC Chairman Sheila Bair happily went along with bailouts is wrong. Paulson, Sorkin, and Wessel all took Bair to task for resisting these bailouts -- eg Paulson accused her of keeping everyone up all night because Bair wanted to resolve and sell Wachovia. He also famously accused Bair of saying Citi wasn't systemic in wanting to close it. The bailouts boys want it both ways - attacking Bair for not being a team player for resisting the bailouts, but then happy to let people attack her because she reluctantly went along with them. What is wrong with this picture?

There is a difference between assigning blame and accountability. Chairman Bair is one of the few public officials in recent memory who actually tried to follow the law. The actions of Paulson, Tim Geithner and others to protect Citi from a well-deserved failure are a national discrace. Chairman Bair deserves kudos, not the thinly veiled accusations in this comment.

Chris Whalen

www.rcwhalen.com

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Neil Barofsky

Um, Bair was the one who led the battle against a sweetheart gov't deal to subsidize Citi's acquisition of Wachovia, and did so over Geithner and co.'s vehement objection. And but for her fight against Basel II, the bailouts would have been far worse. Get your facts right before launching attacks like this.

[DailyBail]

Vern

Glad you showed up here. We have a few questions. Are you open to a discussion on these issues? We have some of the most bailout-obsessed readers on the web here at this site, including Cheyenne who is so insane (good thing) that he wrote and produced a documentary fittingly called Bailout:

http://usabailout.com/

What do you say we open up the floor, Vern?

[Vern McKinley]

Always up for a discussion on these issues.I have six and coming up soon on a seventh lawsuit against the government to wrest details on these bailouts or other actions of the government from the agencies and I know these details better than anyone. Barofsky and Whalen are clueless on these issues on which they are commenting and I have a book with 1000 footnotes and thousands of pages of documents I fought for to support anything I have said in the Bair article.

For some reason my browsers (Google Chrome and Explorer) do not like the Daily Caller's webpage, but I can now see the comments for the first time, but am having a problem posting a response (maybe there is a delay?).

[Vern McKinley]

Just to inject some details into this discussion, here is the set of minutes from the Board Meeting (chaired by Sheila Bair) at which the Board voted on the Citigroup bailout which was released to me after Judicial Watch and I fought the FDIC for a year:

http://www.scribd.com/doc/49364840/Citigroup-Open-Bank-Assistance-Unredacted-FDIC-Minutes-from-23-Nov-2008-Lawsuit-2

and the Wachovia bailout (originally heavily redacted):

http://www.scribd.com/doc/17241127/Board-Meeting-92908-14-Pages

which after fighting the FDIC for over a year, they finally released in full after the issue was addressed in a Wall Street Journal editorial

http://online.wsj.com/article/SB10001424052748703467004575463781244452958.html

[DailyBail]

I'm reading the Docs now, Vern, thanks.

Did you ever work directly with Sheila at the FDIC? No judgement in the question, just curious. Bair actually admitted that she failed to fight hard enough against bailouts in the PBS interview in this story (above). So, to a certain extent, I think she would agree with your criticism.

Have you done any research into the credit markets in fall 2008, and whether it was really true that interbank lending was seizing up at the time. That's one of the issues we looked at in this piece:

http://dailybail.com/home/the-unbearable-lightness-of-tarp-reporting.html

[DailyBail]

Vern

Also, forcing losses on bondholders is something that Bair says she fought Geithner over constantly. At the height of the crisis, with Citigroup, and Merrill insolvent (no offense to the bankrupt folks at Morgan Stanley who needed a $9 billion check from Mitsubishi to save their ass), did you support a restructuring for Citi as many called for? In other words, did you side with Geithner or Bair?

And back to bondholders, did you believe they should have taken losses in 2008, or escape unscathed, as Geithner wanted?

Just trying to get a sense of your bailout worldview.

[Cheyenne]

Wow. These documents raise a multitude of issues. Here are some that come to mind now from the 1st set of docs:

(a) Were these docs produced by the FDIC pursuant to a court order in an FOIA suit?
(b) Why are the bates (?) nos. on the docs in the 50,000s?
(c) Much of the debate seems to turn on whether Citi posed "systemic" risk. But hadn't the FDIC already made that determination when it established the TLGP under 12 U.S.C. 1823? Why is that a question in this meeting?
(d) What was the FDIC being asked to do in this meeting that it couldn't do otherwise?
(e) The mtg minutes refer to restrictions on compensation and dividends. Was Citi in fact restricted?
(f) These docs make it clear that Citi is broke. Was Citi the real reason FAS 157 was repealed by Congress? Or were there other banks that were saved by mark-to-model accounting in early 2009?
(g) Ron Suskin said Geithner ignored a March 2009 order by the President to wind down Citigroup. Geithner says the order was merely to prepare a contingency plan to for restructuring Citigroup. Who's lying?
(h) Concerning the term "systemic," Barofsky attributes the following to Geithner: “You won’t be able to make a judgment about what’s systemic and what’s not until you know the nature of the shock.” Is that right? If so, isn't that term, if not altogether meaningless, merely a conclusion? And if THAT's right, who (FDIC, Treas., or Fed) decides whether a bank is or isn't systemic?

[Cheyenne]

The 2nd group of documents are heavily redacted and next to useless except for two things: the date (9/29/08) and the subject matter (Citi's "deal" to acquire Wachovia, which never happened of course). But even this minimal data set raises questions:

(A) Citgroup posted 2Q08 and 3Q08 losses of $2.5 billion and $13 billion, respectively, while Wachovia posted losses of $9 billion and $24 billion for the same periods. How in the HELL would Citi's acquisition of Wachovia promote system stability?
(B) Don't quarterly losses that big make a mockery of the FDIC's DIF fund, which stood at about $35 billion when this meeting was held?
(C) Isn't it true that the day after this meeting, Hank Paulson unilaterally changed Treas.Reg. 382 so that the net operating losses of a target bank could be used and carried forward in tax years by an acquiring bank? And didn't this pave the way for Wells Fargo (which didn't post a loss for 3Q08) to "steal" Wachovia out from under Citi's nose?
(D) Why was Citi so pissed off when Wells stole its toxic dingo baby, Wachovia, a dog that was hemmorhaging cash?
(E) Under what legal authority was TR382 changed?
(F) Since the TR382 change was a direct hit on taxpayers, to the tune of $100-200 billion, shouldn't this amount be factored in to the calculations of people who claim the bailouts turned a profit?

[Vern McKinley]

Gentlemen: I did not work for Chairman Bair. I worked for FDIC from 1985 to 1988 in Texas during the banking crisis and again for FDIC when the RTC was created to clean up the S&Ls from 1990 to 1995. For the last 13 years I have been working internationally as an advisor to foreign governments on these issue and worked in 8 countries that were going through some type of financial crisis.

I did not do any research on whether the markets seized up or not, but it would be interesting to investigate.

Yes, of course I would have applied hits to creditors including uninsured depositors. As for my preferred approach, it is very difficult given the dearth of information, but my sense is that the bridge bank authority which the FDIC was given in 1987 in the wake of the string of bailouts in the 1970s and 1980s (1974 Franklin National; 1980 First Pennsylvania; 1984 Continental) which is intended to address cases of failures of large/complex institutions would have been useful. It was only used for the moderate sized IndyMac during this crisis. Unfortunately, as can be seen from the minutes of the various meetings there was not even a mention of this authority. Here is my Scribd webstie with many of these documents:

http://www.scribd.com/vernmckinley

I have the unredacted version of the Wachoiva stuff, but it is not on the Scribd site.

(a) Were these docs produced by the FDIC pursuant to a court order in an FOIA suit? Yes, my various lawsuits are detailed in my Scribd account.
(b) Why are the bates (?) nos. on the docs in the 50,000s? These are random identifying numbers and do not indicate much.
(c) Much of the debate seems to turn on whether Citi posed "systemic" risk. But hadn't the FDIC already made that determination when it established the TLGP under 12 U.S.C. 1823? Why is that a question in this meeting? The TLGP was too complicated to raise in my editorial, but you are right this is important. TLGP minutes are here but they don't detail very well any systemic determination:

http://www.scribd.com/doc/49365351/TLGP-Guarantee-Bank-Debt-FDIC-Board-Minutes-13-Oct-2008-Unredacted-Lawsuit-2

(d) What was the FDIC being asked to do in this meeting that it couldn't do otherwise? It was reviewing whether to invoke its power known as the "systemic risk exception."
(e) The mtg minutes refer to restrictions on compensation and dividends. Was Citi in fact restricted? I would have to look into it further.
(f) These docs make it clear that Citi is broke. Was Citi the real reason FAS 157 was repealed by Congress? Or were there other banks that were saved by mark-to-model accounting in early 2009? not familiar wit that.
(g) Ron Suskin said Geithner ignored a March 2009 order by the President to wind down Citigroup. Geithner says the order was merely to prepare a contingency plan to for restructuring Citigroup. Who's lying? I am not aware of this.
(h) Concerning the term "systemic," Barofsky attributes the following to Geithner: “You won’t be able to make a judgment about what’s systemic and what’s not until you know the nature of the shock.” Is that right? If so, isn't that term, if not altogether meaningless, merely a conclusion? And if THAT's right, who (FDIC, Treas., or Fed) decides whether a bank is or isn't systemic? It is an undefined term, just like pornography, they know it when they see it.

(A) Citgroup posted 2Q08 and 3Q08 losses of $2.5 billion and $13 billion, respectively, while Wachovia posted losses of $9 billion and $24 billion for the same periods. How in the HELL would Citi's acquisition of Wachovia promote system stability?
It would not. Citi was actually under an administrative order, a memorandum of understanding as I noted in the Daily Caller.
(B) Don't quarterly losses that big make a mockery of the FDIC's DIF fund, which stood at about $35 billion when this meeting was held? Yes the Fund is only a little over 1% of insured deposits in the best of times.
(C) Isn't it true that the day after this meeting, Hank Paulson unilaterally changed Treas.Reg. 382 so that the net operating losses of a target bank could be used and carried forward in tax years by an acquiring bank? And didn't this pave the way for Wells Fargo (which didn't post a loss for 3Q08) to "steal" Wachovia out from under Citi's nose? Yes this tax change was made and it made the Wachovia deal more attractive.
(D) Why was Citi so pissed off when Wells stole its toxic dingo baby, Wachovia, a dog that was hemmorhaging cash? I think Bair did the right thing here because it was in the best interest of FDIC to let Wells win.
(E) Under what legal authority was TR382 changed? I don't know.
(F) Since the TR382 change was a direct hit on taxpayers, to the tune of $100-200 billion, shouldn't this amount be factored in to the calculations of people who claim the bailouts turned a profit? Again, not familiar

If you guys are interested in getting a copy of my book, let me know and I can forward copies (eversion or bound).

[Vern McKinley]

I just posted the full Wachovia documents to Scribd. For some reason I never posted what I received from FDIC on Wachovia but this includes the Wachovia minutes that were heavily redacted in the above message, a meeting transcript, supporting staff memo (these start about page 69) and other regulatory documents (these are the first few documents).

http://www.scribd.com/doc/110876535/McKinley-v-FDIC-Wachovia-Package-of-Regulatory-Documents-and-Board-Materials-Lawsuit-1

[Cheyenne]

Thanks a lot, Vern, for taking the time to answer those questions. I'll hunt down your book.

Since you were involved with FDIC/RTC in the late '80s and early '90s, I must pull a Columbo: one more question...

Why were 1000 high-ranking financial executives jailed for fraud following the S&L crisis, but 0 in this crisis (which is 2 orders of magnitude bigger)?

[DailyBail]

Vern

On FAS 157

Here are a few links:

Accountants Gain Courage to Stand Up to Bankers: Jonathan Weil

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5BsXz90CMso

http://www.nytimes.com/2009/07/28/business/28account.html?_r=2&dbk&

http://online.wsj.com/article/SB124882561362388459.html

http://dailybail.com/home/bailout-protest-call-the-fasb-today-203-847-0700-the-vote-on.html

[DailyBail]

Cheyenne

On FAS 157

It was not just for Citi. There was pressure from everywhere. The banking lobby was out in force. Interestingly, Bernanke and Paulson were both against changing the mark to market rules. Here's an awesome clip from Grayson on the subject.

http://www.youtube.com/watch?v=6baBFKZETOE

God, this is hilarious.