FDIC's Sheila Bair Backs Consumer Agency, Defying Other Regulators

In contrast to her fellow federal bank regulators, Federal Deposit Insurance Corp. Chairman Sheila Bair continues to back an independent consumer-focused agency to protect borrowers from predatory lenders.

At a gathering of bankers held by the American Bankers Association, Bair reiterated her support for the consumer agency, though she acknowledged that the chances of it being a stand-alone agency -- free from interference by other regulators -- are waning.

"It's better to have a stand-alone agency, she said in response to questions from reporters. But, "it doesn't look like that's going to happen."

The agency, vigorously opposed by bankers and lenders, has emerged as a hotly-contested issue between Democrats and Republicans. The argument for the agency has been reduced to "Banks versus Families," as articulated by bailout watchdog and Harvard Professor Elizabeth Warren.

But 18 months after the financial crisis nearly brought down the world's economy, Washington has yet to enact a law addressing the crisis or to prevent new ones.

Some experts pushing for financial reformer privately concede that the holdup over the agency is delaying much more important -- and necessary -- market reforms, like regulating derivatives and ending Too Big To Fail.

Bair's insistence on an independent agency, though, stands out among the nation's federal bank regulators. Federal Reserve Chairman Ben Bernanke has said he does not want to lose the Fed's authority over consumer protection; John Bowman, head of the Office of Thrift Supervision, does not support the proposed agency; and John Dugan, who leads the Office of the Comptroller of the Currency, has long resisited the idea of divorcing bank regulation from consumer protection.

Yesterday, Dugan told a gathering of bankers at the ABA conference that if the two are separate, consumer protection would trump bank profitability, which he said is "backwards."

Comments

[Carolab]

04:08 AM on 03/21/2010

Shades of Brooksley Born. The boys won't listen because they know the girl is right and they have no morals.

[realitytrumpsbull]

01:09 PM on 03/20/2010

What if the consumers themselves start demonstrating some 'agency', and stop waiting for The Government to do something, there? After all, you're talking about an institution that does SUCH a great job of managing its' money that they go another 1.4 trillion 'in the hole' every year(EVERY YEAR), and they're somehow going to sort out all the B.S. on Wall St? Riiiiiiight. Please, tell me another one, that was riotously funny. Well, a joke, at any rate, and in this context, a joke on the taxpaying public, as well as anyone relying on something like reasonable interest rates against which to balance their personal finances.

If you want to really protect yourself, as a consumer, then cut up those credit cards, pay off that loan ASAP, and don't get suckered into investment scams. Read, read, read, that's the real consumer protection, and be aware that people in the business world have made billions off people just like you. So, don't go there.

[hypnotoad72]

04:20 PM on 03/21/2010

Mostly because people elect into the government the types that say "government doesn't work". Those elected then break it.

[GoodRead]

03:24 AM on 03/20/2010

I like this Blair woman; she's got spunk.

And while I know it is totally irrelevant and inappropriate, I think she is cute too

[blueken]

09:17 AM on 03/19/2010

We need more educated, experienced and qualified people in and outside of the system to stand up and be counted. I know it will take courage, but this is your country. You have to know how much damage these fraudelant practices have done. You have to know how many people have been hurt. You have to know that unless we do somethig meaningful, it will happen again. Think about the kind of nation you will be leaving to your children and your grandchildren. Stand up and fight for what is right.

[Jannsmoor]

05:51 PM on 03/18/2010

Seneca,
While some of solutions are thoughtful, I prefer my own.
1. Break up the TBTF institutions or tax them out of existence. Tax what is left sufficiently to pay back the trillions lost by their profiteering ways and create sufficient reserves.
2. Take owner occupied home mortgages away from the Wall Street Profiteers. They should be held entirely by Fannie Mae and Freddie Mac. The process to do this is statutory mark to market pricing and forced sale of the mortgages. Change the interest rate and payment structure to keep homeowners in their homes while encouraging a recovery of the home building industry.
3. Eliminate the free speech defense of ratings agencies. Set a standard for honesty that compels their compliance.
4. Force all derivatives onto open exchanges.
5. Require shareholder approval of all corporate political spending.
6. Require shareholder approval of all executive compensation.

[nThenwhat]

06:26 PM on 03/18/2010

As a reformed / retired corporate-securities attorney, I truly believe that corporations should be outlawed except in rare situations where the proponents can demonstrate (and deliver) some clear and substantial benefit to public health, safetly and/or welfare. Only when the current risk dynamic is reversed can we expect to see any progress in curing the current situation where profits are privatized and risks socialized. Any average eighth grader would look at the current mess and come up with the same solution.

[Jannsmoor]

07:42 PM on 03/18/2010

I am with you 100%. Corporations, as fictitious State licensed entities, can be required to meet any standards we the people deem appropriate. There is no reason on earth they have to be devoted to greed. They can be required to serve wider social purposes, just as you suggest. Where do I join up?

[plumbergirl]

03:34 PM on 03/18/2010

We should get rid of Geithner and the rest of the lot and put Warren and Bair in charge. They run rings around the men in charge now. Please let the women hold the pocketbook.

[Seneca]

04:07 PM on 03/18/2010

No, do not put Bair in charge. Fire her as soon as possible. She is a consummate insider, a wonderfully competent, even brilliant self-promoter. She did not need to shut down Washington Mutual or even Indy Mac, not to mention many others, when FDIC stepped in. Many if not all of those institutions could have been saved, without taxpayer bailouts, but taking them down raised Chair Bair's profile. Plus, she isn't doing all this with clean hands -- a bit of self dealing, like Dodd's and several others, makes me want her out now. She'd make a great Board Chair Bair for one of the largest commercial banks.

[Jannsmoor]

05:38 PM on 03/18/2010

I am a big fan of Sheila Bair. She has not been reluctant to speak truth to power. I would have to see your basis for thinking WaMu didn't fit the criteria for FDIC takeover.

[nThenwhat]

06:16 PM on 03/18/2010

Appreciate all your efforts on this thread, but I have to Strenuously disagree with you on the subject of Shiela Bair. Presently, I have the utmost regard for Ms. Bair and would gladly vote for her to be President or any other office.

[Seneca]

04:10 PM on 03/18/2010

Yes, fire all the Goldman Sachs people -- but that would mean we'd have to elect a different Democratic Party Administration not completely in thrall to them. I can't think of anyone from either side of the aisle who is up to the job, for no politicians at that level appear willing to work toward what ought to be instead of that which is and always has been.

Only public financing of elections or some sort of new version of TR's Bullmoose progressivism might get the corporate money out or at least minimized.

As it is now, we get the leadership we pay for.

[Seneca]

02:20 PM on 03/18/2010

We do not need a new regulatory structure. Yes, the Republicans are full of it. But Dodd, Barney Frank and the Administration are, respectively, naive, cynical, and clueless both on the politics of financial regulatory reform and, especially, on the substance. Their bills do not address the cause of the crisis. And they know it. All that is needed is to enforce vigorously current rules on risk management and safety and soundness standards -- in addition, those unregulated lenders who remain should be covered. Do not promulgate new rules or pass laws that do not address the cause of the crisis. An independent consumer protection agency would only make a complex web of financial regulation worse, not better. Consolidating all regulatory agencies would also fail to cure what caused the crisis. We don't need to move the deck chairs around, the ship will sink anyway unless we plug the holes in the hull. One of the holes is caused by the failure of the existing system to blow the whistle on lenders exceeding the greed limit -- nothing new needed besides the will to enforce the rules we have. Perhaps the biggest hole is caused by the Fed -- make it more transparent and accountable, for we know not what, if anything, they do. To protect consumers, then direct OCC and OTS to do that job. The House bill is a cynical, politically expedient sham. Barney and Dodd agree to abolish the OTS merely because it doesn't cost anything politically.

[nThenwhat]

02:24 PM on 03/18/2010

While I don't agree with Everything you've said here, this is an excellent post and I only wish more people had your understanding and thoughtful perspective on these matters.

[Seneca]

04:13 PM on 03/18/2010

The financial crisis involves complexities beyond our poor abilities to untangle or understand. Having said that let me oversimplify. Rather than an outright bailout, another alternative to consider would have been for Congress and other officials to give banking and financial agency regulators the authority and time needed to work with troubled institutions to prevent unnecessary failures - not push institutions into preventable failures. What has deregulation meant in practice? Regulators should improve their institutions' safety and soundness by refocusing thrift/bank managements' and supervisory agencies' attention on emphasizing appropriate risk-management. Arguably it was the complete lack of prudent underwriting of both mortgages and of the securitized bundles of various forms of debt that led directly to the collapse in trust and confidence in the value of those instruments. Congress and others should help create a level, scrupulous, and comprehensively well-regulated playing field so that consumers and investors have confidence in the transparency, fairness and integrity of all financial transactions based on securitizing debt in the United States, especially mortgages and mortgage originations. No party along the chain of possession in the creation and transfer of these debt instruments and securities based on them should be able to transfer them on absent an assumption of risk and responsibility on their part. That was another aspect of deregulation – we institutionalized irresponsibility and lack of accountability. The result? We privatized profit while socializing risk. Reform could fix that, but the bills out there won't.

[Seneca]

04:17 PM on 03/18/2010

Further, and quite important insofar as "too big to fail" goes, we need a Federal insurance regulator to be the primary regulator of giant insurance holding companies, like AIG. Right now insurance regulation is at the state government level and whether it is general business, life, financial, or health insurance, that regulation isn't enough when it comes to the big boys. The law now provides, for example, that the Office of Thrift Supervision regulates an entity like AIG because and only because AIG had a subsidiary savings or thrift subsidiary. But while OTS could examine all of AIG's affiliates, subsidiaries and the holding company itself to see what amount of risk the whole enterprise was taking on, OTS did not then and does not now have the regulatory enforcement power to force AIG or companies like it to take measures to fix a bad risk profile. We need a federal insurance regulator -- an independent agency -- to do that for all giant holding companies whose main line of business is insurance.

[citizen625]

01:51 PM on 03/18/2010

The ethics of Wall Streeters is the ethics they were not taught at their Ivy League schools. The fantastic sense of entitlement is completely nurtured by their education. How much money does the US government pay to these educational institutions to further their hegemony every year? Sheila Bair graduated from U Kansas.

[toinfinityandbeyond]

12:09 PM on 03/18/2010

Wall Street Banks Using Geithner and the NY Fed to Stifle FDIC Reforms.

The President's Working Group on Financial Markets, aka the 'plunge protection team,' is apparently acting to block financial reforms being proposed by Sheila Bair's FDIC, according to the attached piece from Chris Whalen of Institutional Risk Analytics, an authoritative source on US Banking.

The President's Working Group on Financial Markets consists of:

Time Geither, The Secretary of the Treasury, as Chairman of the Working Group;
Ben Bernanke, The Chairman of the Board of Governors of the Federal Reserve System,
Mary Shapiro, The Chairman of the Securities and Exchange Commission; and
Gary Gensler, The Chairman of the Commodity Futures Trading Commission.

This is reminiscent of the actions of Larry Summers, Robert Rubin, and Alan Greenspan to block attempts by Brooksley Born, then head of the CFTC, to head off the derivatives crisis back the 1990's, the very crisis which brought the US to the brink of disaster last year.

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

[LeLoup]

11:40 AM on 03/18/2010

"Dugan told a gathering of bankers at the ABA conference that if the two are separate, consumer protection would trump bank profitability, which he said is "backwards."

Yet another tool looking for the plush job after a stint in government. Can someone in the White House PLEASE locate his/her spine and FIRE this REMF NOW?

Since every other major democracy has a national consumer protection agency, here my question to Dughole the Bandit:

Pray tell us ONE example of a national banking system that has seen their profitability eroded to the point of financial instability ANYWHERE in the western world by the diktats of a consumer protection agency?

Come on punk! Make our day!

[Agathon]

11:13 AM on 03/18/2010

Profits before people... what a bass-ackwards approach to governance. And since the state is controlled by capital, its no wonder so many people distrust the government to look after their interests. One thing is for certain, capitalists won't look after the interests of the people unless there's profit to be had.

The thing is, it doesn't need to be this way. The people simply need to hold the government responsible for it's actions. Government has a function, and that function is to represent the will of the people, and to assure a strong, vibrant society. The US contitutions's preamble reads:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

I find that the idea of capital holding dominion over people is completely absent, and effort to convince American citizens otherwise is really nothing more than a continued effort at retaining class distinction and priveledge.

[rosiebond007]

11:03 AM on 03/18/2010

Of course Bernanke doesn't want to lose 'control' - he has done NOTHING about regulation to date and the bankers don't want him meddling in the future - and he won't - he is in their pockets.

WE LOSE AGAIN

[cardholder]

11:33 AM on 03/18/2010

What is that old saying? Oh yes, it's "Use it or lose it". Bernanke has not used it, but he wants to hold on to it so no one else can use it. Same goes for the others. Providing for the "common defense" does not preclude defending the American people from shyster financiers, which is all we have in place. The problem is the men, who are so removed from we the people by station and class, that they are unable to discern who needs protection. They have opted to continue to expose our unprotected "posteriors" to the sodomy inflicted by the bankers.

[pvaz]

10:55 AM on 03/18/2010

Brooksley Born, all over again.

[terratoph]

10:29 AM on 03/18/2010

I nominate Warren and Bair for the Executive Office!

[saintjule]

10:40 AM on 03/18/2010

"DITTO"

[nThenwhat]

12:39 PM on 03/18/2010

ABSOLUTELY CORRECT.
Shelia Bair, especially, as an acting regulator, has been correct in real time at nearly every turn throughout the "financial crisis". I would vote for Ms. Bair in virtually any capacity due to the fact that she is one of those rare people able to exhibit clear and correct judgement, even if sharply contrarian, during times of highest stakes and maximum pressure. Ms. Bair should be President of U.S., Fed Chairman or Treasury Sect'y.

[orianna]

10:24 AM on 03/18/2010

Profitability has become the God of America

[LeLoup]

11:43 AM on 03/18/2010

Yup! The worshipers of the Golden Calf; history showed how bad an idea it was.