Sheila Bair, FDIC Chief, Traded Angry Emails With Fellow Regulator Over WaMu Collapse

dealbreaker.com:

Dealbreaker published a copy of an August 2008 email OTS Director John Reich sent to Sheila Bair after she emailed him about her desire to "discuss contingency planning" in the event that Washington Mutual experienced "an emergency closing." Elsewhere, Reich wrote that he could not "believe the continuing audacity of this woman," but to her directly, he wrote:

Read the whole story: dealbreaker.com

Comments

[guveqzero]

04:32 PM on 04/19/2010

Why isn't there more outrage from Bair's taking of Wamu and gifting to JPMorgan Chase? Politics dictate that it is no win scenario for government officials to finger another government agency. The OTS is still considered the official government scapegoat, and it is too weak to defend itself.

Admitting to forcing OTS into the taking of Wamu without all the facts is her defense, that is not really a defense but an excuse. There is still a lot of dirt behind this episode in the financial crises. The question is when does the government want to release the information to the public, if ever.

Right now the government wants to punish someone to show that something is being done. Wamu is an easy target, but so are JPMorgan Chase, Citi and Goldman Sachs.

[crazylikeafox]

09:26 AM on 04/18/2010

More proof that Sheila Bair and J.P. MORGAN Chase colluded to steal Washington Mutual from it's parent company Washing Mutual Holding company.

the holding compnay had the money to "buy" WAMU. But Bair gave it to Chase for way under the amount it was worth.

[Lauteur Calme]

02:33 PM on 04/17/2010

As a distant observer, it is undeniable that U.S. politicians, the Federal Reserve, and crafty financiers on Wall Street are responsible for the underlying global financial crisis. As a recent Chinese economist stated, where ever there is wealth in the world, and in particular the U.S. (i.e., 401K, Real Estate, etc), opportunistic and deceptive practices by investment bankers on Wall Street eventually steal it while politicians turn a blind eye.

The global reaction from Wall Street's egregious behavior allowed by U.S. politicians is almost universally negative. With full equilibrium analysis, it is glaringly obvious that Wall Street is one huge Ponzi scheme. In addition, for years financial policies coming out of Washington, D.C. have been in the interests of bankers in New York and elsewhere.

The fact that U.S. politicians have been bought and sold for years is nothing new. However, there are ironies to this global financial debacle that are interesting. For instance, seeing Clinton and Bush beg for money from U.S. citizens and the global community for Haitian relief after the earthquake. It's also ironic that one of the Federal Reserve's mandate is to manage the flow of money and credit in the U.S. economy, much less the world.

One must ask what does Greenspan(incredibly adroit at trying to exculpate through technical jargon), Rubin(always convivial as long as it benefits him), Summers(the apotheosis of arrogance), Madoff(one big lie), Bernake(a pawn), and Geitner(sounds like a robot) have in common?

[iridium53]

01:30 PM on 04/17/2010

Lack of definitive rules and regulators that are constrained by rules, is demonstrated clearly here.

The reason why a Financial Reform plan that does not include very definitive rules about how to handle banks in trouble is demonstrated here.

Empirically, when regulators that have intimate relationships with banks - Geither with GS - have options other than receivership, they will take the option of having the public pay to support their buddies - as did Geither and Paulson.

When they have no such relationship, as here, Bair with anything West Coast and not Wall Street, they will force it to die.

New financial regulations that allow regulators to have such options will continue with untrustworthy individuals with huge biases (Geithner and Paulson) being able to throw money at their friends and kill others.

Insanity is expecting different results when the same people are doing the same things in the same ways. Remove the discretionary capability of the regulators - they have proven themselves to be biased and untrustworthy advocates for their banking buddies and not for the shareholders or American people.

[Harrier]

11:17 AM on 04/18/2010

When there are no rules or procedures to handle shutting down Banks like WAMU, this type of "Spirited" exchange is expected. The Fed is still working on refining this process.

[Toolmon]

10:47 AM on 04/17/2010

Kudos to Ms. Bair.
Without doubt the most intelligent and competent of the supposed financial experts.
The likes of Reich, Summers and Bernanke should be summarily given their walking papers.

[henrypapillon]

10:36 AM on 04/17/2010

Hmm, sounds like this cam back and bit him in the rear. What's with the mayor may not? He sounds kind of like Brownie during the New Orleans Katrina crisis" I'm going out to dinner now and I don't want to be disturbed." He is on his cruise and he doesn't want to be bothered. Hey, isn't this high pressure decision making supposedly what all these big executives are being paid for?

[1question]

05:24 AM on 04/17/2010

Compelling reading. Bring out the popcorn.

I’ve reviewed the emails and…the sequence of events. Bair seems to have been extraordinarily professional.

I think maybe what we (the citizen investors) need is more oversight like Bair and…less like Reich.

[xlntcat]

06:24 AM on 04/17/2010

Agree,

[nThenwhat]

03:49 AM on 04/17/2010

Based on Ms. Bair's real-time performance .... as opposed to most of the "experts" who are presently showing 20/20 hindsight ... I have zero doubt that Ms. Bair could be, and likely Should be in charge of "everything financial" during some sort of transition period where the markets and financial sector are totally shut down and completely restructured. Put the rest of the regulators back on a cruise ship and sink it in the Laurentian Abyss.

[ppy]

05:00 PM on 04/17/2010

OIG said all regulators failed, including OTS, OCC, the FDIC, and the Fed.

The FDIC is in the red. It has no money to pay future depositors at failed banks but is backing over $300 billion of bonds for Goldman Sachs, GMAC, etc.

Wall Street wins. Main Street loses. Again.

"When Banks Fail, So Do Those Promised CD Rates...An astonished Scott received a letter from the FDIC, similar to thousands that quietly have been sent to customers of failed banks around the nation in recent months: 'Your deposit agreement with the Failed Institution is no longer in force.'"
http://www.huffingtonpost.com/2009/11/03/when-banks-fail-so-do-tho_n_344108.html

“TO ESCAPE FEDERAL INTERFERENCE ON PAY AND OTHER MATTERS, Goldman Sachs and other big financial firms are eagerly seeking to repay the government’s TARP equity investments... Goldman has issued $29 billion of low-cost debt through this FDIC program; Bank of America , $44 billion; and JPMorgan , $38 billion. In total, about $340 billion of debt has been sold under the six-month-old arrangement, called the FDIC Temporary Liquidity Guarantee Program (TLGP).”
http://online.barrons.com/article/SB124001886675331247.html#articleTabs_panel_article%3D1

“Lennar… has purchased a 40% interest in the loan portfolios, while the FDIC is keeping the remaining 60% equity interest. The FDIC provided $627 million of financing at no interest for seven years.”
http://www.marketwatch.com/story/lennar-scoops-up-distressed-loans-from-fdic-2010-02-11

*imho*

[OscarthePug]

02:38 AM on 04/17/2010

John Reich is a typical Bush Administration appointed regulator whose only mandra is "see no evil, hear no evil and do nothing to rein in any evil."

I'm all for eliminating all male gender regulators heading up the Fed, Treasury, OTS, OCC, SEC and replace them with strong willed, no nonsense, exceptionally qualified women like Brooksley Born, Sheila Bair, Elizabeth Warren and Mary Schapiro, who will get the job done of protecting the public from bad actors better than anyone.

The "good ole boys" club of financial insiders has never included women, and it's the women who as outsiders can and will tell the adolescent men that it's time to stop messing around and get their rooms cleaned up.

[ppy]

01:11 AM on 04/17/2010

The FDIC doesn't even regulate its own banks (Class NM and SB) properly so what makes you think it would have made a difference on the Wamu situation?

Why should we believe FDIC's assessment when this very same agency picked Citigroup to "rescue" Wachovia?

How did we know OTS was wrong for believing Wamu could have lasted at least until TARP passed?

I want to see an insolvency analysis and I want to see the evaluation of Wamu's worth by our regulators.

It is a travesty of justice for government officials to seize a solvent bank and then hand it out in a fire sale without being held accountable.

Thousands of jobs were destroyed and billions of investments were wiped out.

If the FDIC seized Wamu based only on liquidity pressure and not insolvency, then why in the world did it launch TLGP to help Goldman Sachs, Citigroup, GMAC, etc fight liquidity pressure by backing over $300 billion in bank bonds?

The FDIC is already in the red and can't even pay depositors at future failed bank but it has the ability to pay C bondholders if C were to tank? Remember, it wiped out Wamu bondholders.

Why is the FDIC financing private investors millions in interest free, non recourse loans when its reserve is in the negative?

*imho*

[suec03]

11:15 PM on 04/17/2010

But Wachovia went to Wells Fargo, not Citibank. Did FDIC choose Citibank before Wachovia ultimately went to Wells Fargo?

[ppy]

03:38 PM on 04/18/2010

Yes. For $1 per share.

"Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk."
http://blogs.wsj.com/economics/2008/09/29/fdic-citi-to-buy-wachovias-banking-operations/tab/article/

"FDIC stands behind Citigroup-Wachovia deal"
http://www.nydailynews.com/money/2008/10/03/2008-10-03_fdic_stands_behind_citigroupwachovia_dea.html

*imho*

[ppy]

03:43 PM on 04/18/2010

Here is the link to the real story behind the scene on Wachovia:

"Wachovia's End"
http://www.americanbanker.com/news/wachovias_end-1002613-1.html?pg=1

"The first thing that happened this morning: credit-default swaps blew out on Wachovia... Wachovia bondholders are wondering if they're next," Sauter said. Translation: options on Wachovia bonds showed confidence in the securities had collapsed. "Wachovia is on the ropes now because their financing costs are going through the roof. It's an absolute reaction against how FDIC sold WaMu," Sauter said.""
http://www.philly.com/philly/blogs/inq-phillydeals/Did_FDIC_doom_Wachovia_by_stiffing_WaMu_investors.html

"Wachovia saw its share price plummet 90% to below 70￠ when Wall Street opened today. Federal regulators helped to arrange a deal in which Citigroup will take on $42 billion (￡23 billion) of losses on a $312 billion pool of loans held by Wachovia, which has a portfolio of risky mortgages."
http://www.financemarkets.co.uk/2008/09/29/citigroup-in-wachovia-rescue-deal/

*imho*

[SamEllison]

12:54 AM on 04/17/2010

Turf war?
The guys on a frigging cruise!
Screw the economy, I'm on vacation!

[JacklynD]

02:39 AM on 04/17/2010

You're doing a great job, Brownie!!

[PhilipTaylor]

12:02 AM on 04/17/2010

This HIDING OF FACTS HAS GONE ON ALL DURING THE BUSH YEARS and since FED was CREATED WITH 3 Senators Votes on Christmas Eve 1913!

SECRECY is what THE FINANCIAL ARISTOCRACY MAKES MONEY WITH - FED is the MOST SECRET ORGANIZATION IN AMERICA!

FED makes DEBT "OUT-OF-THIN-AIR" and America is #1 DEBTOR NATION - Thanks to the FED and Financial Aristocracy!

[Acharn]

02:43 AM on 04/17/2010

Well, to be accurate, we've only been a debtor nation since 1983. Before that we were the biggest creditor nation. Are you old enough to remember what happened in and after 1983? Why didn't we become a debtor nation after 1913? Why didn't we become a debtor nation in 1929 or 1937? The Fed was the same then as now (well, the Fed then wouldn't have participated in bailing banks our; "Liquidate, liquidate, liquidate. Liquidate businesses. Liquidate homeowners. Liquidate farmers. That's the only way to solve this Depression").. See also, Austrian School of Economics.

[deepsouthfugee]

08:03 AM on 04/17/2010

Reagan?

[Auduboner]

11:17 PM on 04/16/2010

Reminder: That OTS Director "retired" in the middle of the mess, and his Acting Replacement, Polakoff, was placed on leave when it came to light that SIX banks under OTS' supervision, including IndyMac, were caught backdating their capital infusions, with OTS' consent. Any idiot who thinks Sheila was wrong must be a WaMu investor or executive.

http://www.huffingtonpost.com/2009/03/27/scott-polakoff-top-bank-r_n_179828.html

[ssfahrer]

10:41 PM on 04/16/2010

We should have just let it fail-- not have basically FORCED J P Morgan Chase to buy the assets, etc. of WaMu. Once the public realizes that the Government WILL NO LONGER bail out these banks (a policy which should have been followed from the beginning, BTW), the public would either do one of two things: 1) FORCE THE BANKS TO BE RESPONSIBLE WITH OUT THE NEED FOR OVERREGULATION, or 2) FORCE THEM TO CLOSE ALL BY THEMSELVES by removing their cash from same....

[helen]

08:37 PM on 04/16/2010

Men do not like strong women, do they?

[marijam]

09:44 PM on 04/16/2010

No, they don't. They don't like smart ones either. That's why so many women have to "hide their light under a bushel basket".

[ErnestineBass]

12:19 AM on 04/17/2010

Too bad.

If a&&hats like Rubin or Summers or Greenspan had listened to Brooksley Born, banking might not be in the sorry state it's in.

[WIpatriot]

12:24 AM on 04/17/2010

No chance that was EVER going to happen, EB.