The Wake-Up Call: FDIC's Sheila Bair Says Regulators Need 'Political Courage'

• Outgoing Federal Deposit Insurance Corporation chair Sheila Bair appears before the House Financial Services committee to discuss the agency's role during and after the financial crisis. Bair calls on regulators to show political courage to do their work effectively and take on weak practices and excessive risk-taking. Key quote:

"The history of the crisis shows many examples when regulators acted too late, or with too little conviction, when they failed to use authorities they already had or failed to ask for the authorities they needed to fulfill their mission. As the crisis developed, too many in the regulatory community were too slow to acknowledge the danger, and were too slow to act in addressing it. The fact is, regulators are never going to be popular or glamorous figures, whether they act in a timely manner to forestall a crisis or if they fail to act and allow it to take place. The best they can hope to achieve is the knowledge that they exercised the statutory authority entrusted to them in good faith and to its fullest effect in the interest of financial stability, without regard to the political consequences." [WATCH LIVE]

• The administrator of Fannie Mae and Freddie Mac, Edward Demarco, pushed back strongly yesterday against Rep. Jason Chaffetz's (R-Utah) proposal to make the housing finance giants open to FOIA requests. His argument: FOIA is "often explained as a means for citizens to know what their Government is up to" and Fannie and Freddie are still private companies. "They did not cease to be private legal entities when they were placed into conservatorship, nor did they become part of FHFA." As Zero Hedge points out: "Still private companies? That's the reason they are shielded? After the taxpayers shelled out $200b (and counting)? Bullshit."

• The White House released the results of its promised regulatory review and published a list of initiatives from over two dozen agencies that are designed to reduce burdens and save money. Among them, the Interior Department is reviewing outdated regulations under the Endangered Species Act. What caught your eye? Let me know.

• Has lobbying by financial institutions contributed to the financial crisis? That is the question explored in a study by three IMF economists. Among their findings: lobbying was associated with more risk-taking during 2000-'07 and bigger bailouts by the government following the financial crisis. In particular, those who lobbied the most made the riskiest loans and expanded faster than their competitors, exacerbating the housing crisis.

• Today's must-read: a great AP investigation legendary gun manufacturer Colt. The company turned to a high-powered lobbyist when it looked like it was about to lose its exclusive deal to provide combat rifles to the U.S. military. "The move highlights the importance of a contest that is the Super Bowl and World Series rolled into one for the small arms industry. The Pentagon may buy hundreds of thousands of the new carbine, which should be more accurate, lethal and reliable than the M4 used by troops in Afghanistan and Iraq. At stake is millions of dollars in business for the winner at a time when budgets are tightening and opportunities for long-term weapons contracts are dwindling."

• Congress may take up proposed legislation to apply U.S. criminal laws to federal employees and government contractors working overseas, reports Legal Times. This marks the third such attempt in the wake Blackwater security guards killed Iraqi civilians in September 2007.

Comments

[den1953]

11:54 AM on 05/29/2011

To think this woman was present while TARP was born, coming from a ex Bush flunky and calling for regulators not having the balls to do their jobs!

[den1953]

11:52 AM on 05/29/2011

Buy jailing the criminals it would have made the regulators jobs so much easier!

[AZreb]

10:12 AM on 05/29/2011

But - but - but there was an article just the other day where the president is pushing for more DE-regulation for OSHA, endangered species and other items. What the heck is going on in government?

[Timma]

08:53 AM on 05/29/2011

...these days unfortunately politics and courage are two words that couldn't be further apart...

[Peanut Santiago]

10:04 PM on 05/28/2011

The problem is NOT a lack of political courage.

The banksters,Wall Street Big Shots, regulators, politicians.....have a constantly revolving door.

The regulators are PART of the problem because almost all of them really work for banks and Wall Street (oligarchs)....just like the politicians.

Nice lady but she doesn't get it.
The problem.
Maybe because she is reasonably honest and not part of the problem?

[sloreader]

02:53 PM on 05/28/2011

"Political courage" makes a fine example of an oxymoron. It should be right up there with "military intelligence", among others.

[AZreb]

10:13 AM on 05/29/2011

fanned - also "equal justice"

[jo smith456]

08:53 AM on 05/28/2011

'Political Courage'== means to "bite the hands [of the lobbyists or election fund donors] that feed you"

[MPFIED]

07:42 PM on 05/27/2011

While I agree for the most part with Bair's assessment, I think another issue is also a key factor in what has happened with the financial firms and markets. That is the advent of all these exotic and confusing investment vehicles oftentimes created by mathematicians who have no practical experience in financial industries. Investment instruments created over night, packaged and traded with no regard to actual risks. Products that have no track record simply because these esoteric entities have not existed long enough to be tested.

Even Modern Monetary theorists believe that separate,disinterested governance is necessary to maintain the integrity of said financial markets. But how does one regulate financial products one has no depth of understanding of?

[Conk]

02:59 PM on 05/27/2011

Regulators need to stop issuing more regulations and let Congress make a law if necessary. The rule of law is gone in this country, supplanted by regulatory agencies!!!

[Iammadashell]

03:26 PM on 05/27/2011

That are being bought off everyday.

[StopMakingSense2]

01:53 PM on 05/27/2011

Say what? How about politicians with political courage! Nah it's so much easier to wear the corporate team colors..

[boston 67]

10:29 AM on 05/27/2011

How Wall Street was able to play its game for so long? How they turned Americans into zombies?!
Here is how: http://tinyurl.com/6472rxo

The time has come to stand up and demand justice! All responsible for the biggest financial fraud in the history of the world MUST be prosecuted or this country will never be healthy again. I want a nice, prosperous future for my kids, but with the same players who brought America to its needs that would be impossible!
Please join and send a letter to your Registrar of Deeds - they need to take a lead!
My Register of Deeds (MA) ran an audit on my mortgage and found a lot of illegalities (the things that I knew since the beginning). We should all stand up and demand justice or we’ll be slaves forever http://tinyurl.com/3qsu87x

Here is also my open letter to AG Miller (the lead negotiator with the Banks): http://tinyurl.com/3h5kfy9

[Under Fed yet Fed Up]

09:42 AM on 05/27/2011

Obviously nobody impacted by the regulations within the sights of the White House's regulatory review panel was consulted. Several of these proposals will cost money, not save money.

For example, OSHA moving to a harmonized hazard classifications would be good but only if DOT does so at the same time. If not, it will be expensive or impossible to comply with both sets of regulations.

[fineartgalaxy]

07:54 AM on 05/27/2011

Now we have heard it all. Courage? How about just do their job. Oh, let me guess, they probably do but it is their bosses who need the political courage to act on their recommendations, right? Is that what you meant to say?

[Jamf]

10:22 AM on 05/27/2011

You are correct, and I'm pretty sure that's what she meant. When regulators get higher up in the food chain, they tend to come under increasing pressure (from subtle to overt) to tinker with their findings in such a way as to make those under supervision look better (and/or not guilty). That's the reality. In such cases, the regulators need to have the stones to tell those who are doing the pressuring to go pound sand, that the findings are what they are, and that if they don't like it, they can take it up with (fill in blank). As I see it, the largest problem is the hyper-ambitious, ladder-climbing tendencies of those calling the shots. We need regulators who like being regulators, who are not afraid to put the screws to those under supervision, who are not afraid to say, "Book 'em, Dano..."

[BigDaddyWow]

11:18 PM on 05/26/2011

What is needed is an organization staff with bright but disgruntled Wallstreet hardcores. These folks are to be compensated directly by monies they win through prosecution of Wallstreet bankers. No limits. Their tactics should be state of the art; their style must be highly aggressive and their commitment is beyond reproach. They must be feared. In addition, an effort needs to be undertaken standardize electronic records so that audits can be done remotely and more importantly, automatically. It is critical to get control of these devils or they will pop our economy again; and soon.

[Jamf]

10:23 AM on 05/27/2011

"They must be feared." I like the way you think. Fanned.

[clearasmud]

11:04 PM on 05/26/2011

Courage? Why don't they just do the job they are paid to do?

[zatgy]

01:05 PM on 05/27/2011

They need to feed and clothe their families so I guess keeping their jobs is what is most important to them. Getting re elected is what matters. Courage to do what?