Advice To Team Obama: Keep FDIC's Bair

Now comes word that Timothy Geithner, President-elect Barack Obama's choice for U.S. Treasury Secretary, is trying to push Federal Deposit Insurance Corp. Chairman Sheila Bair out of office. So much for Obama's "team of rivals" governing philosophy.

Apparently, Geithner worries that Bair is not a team player, according to Bloomberg Business News, which broke the story.

Some infighting is considered good sport, even in the Obama era. But pushing out Bair is not a wise, nor politically astute, decision. Before things get out of hand, Obama's camp needs to rethink this one and back off.

That's because dumping Bair--a federal regulator who is serving the public well during this sorry economic passage--will send out a cruel message which states: The U.S. Treasury remains committed to saving Wall Street's hide but won't be a champion of ailing home owners on Main Street U.S.A.

Indeed, Bair is an outspoken advocate for directly attacking the housing crisis. For example, after taking over IndyMac Bank, Bair's FDIC launched a plan to help troubled borrowers rework mortgages and make them more affordable. Yes, there are some kinks in this initiative, but overall the plan is considered a blueprint for providing needed relief to those facing foreclosure.

A Republican appointment, Bair isn't shy about openly taking on the GOP's Treasury Secretary Hank Paulson and his muddled bailout effort. From the outset, she pointedly questioned Paulson's ad hoc strategy, which bounced around from buying troubled bank assets to infusing capital directly into banks without any oversight, structure or conditions.

Had Paulson paid heed to Bair's advice, the major banks--which have already scarfed up over $250 billion in taxpayer-backed funds and guarantees--would now be lending a cut of that cash haul to businesses and consumers. Instead, they are using our money to plug gaps in their balance sheets and buy other banks.

And during one of the darkest moments of the economic meltdown, Bair successfully pushed for Congress to temporarily expand the FDIC safety net, raising the insured deposit rate to $250,000 per account from $100,000. That move boosted depositor confidence and likely blunted a number of nasty bank runs.

Does Bair have critics? You bet.

She's come under fire for pushing the sale of Wachovia Bank to Wells Fargo, after the FDIC paved the way for an agreement that allowed Citigroup to buy Wachovia. At the time, Citi argued that the FDIC had gone back on its word.

Yeah, it probably did. Still, it's highly problematic that Citi could have successfully acquired Wachovia even with government welfare. Remember, this is the same Citi that recently went back for a second helping of government bailout money because it was headed for the brink. So, it looks as if Bair made the right course correction, saving taxpayers big money along the way.

Technically, Bair still has a few years left of her five-year appointment. But a critical Treasury Secretary and unsupportive President could make her remaining years pretty miserable.

One of the concerns about proposed Treasury Secretary Geithner, who runs the New York Federal Reserve Bank, is he's very close to the giant banking powers and Wall St. Sort of a Hank Paulson-type but with more hair. And you'd hate to think that since Bair was considered a candidate for Treasury Secretary that Geithner wants her out of the way.

Let's hope not. We can't afford more of the same nonsense.

But Geithner can confound the critics--and live up to his boss's desire to forge a government from a knowledgeable "team of rivals"-- by putting aside his reservations and working with Sheila Bair.

Comments

[Henry]

You hear it over and over again by market sages that the "bottom" needs to be hit. Bair's hair-brained idea of massive modification to prevent a "bottom" from being reached will only pro-long and exacerbate the problem. Kid yourself all you want, the speculative ups have to be matched by the bursting downs. When the bottom is reached...then, and only then can stability be attained. I'd also like to point out to you that historically low interest rates are also a "false" variable in the equation that will only result in more agony and pain in the process. Mortgage rates should be 7.5% to 8.0% and housing defaults, foreclosures, and the real bottom needs to be hit. Sounds rude to you does it not? But if you want to take a look at the hard news reality of the subject you'll pay attention.

[Henry]

(hmmm) The FDIC was created by the Glass Steagall Bill of 1934. It regulates state chartered banks that are not members of the FED and it also acts as an Insurance Fund for deposits of all commercial banks. When a bank fails, the FDIC is appointed Receiver of the failed institution.
No where in the chartering authority does the Chairperson (who is an appointee of the President) have any "agency" authority to act as an intermediary between a borrower and a creditor. It may, however, undertake this as a Receiver of a failed institution.
Sheila Bair has no authority to embark on the turf of the Treasury and does so at her own risk. Paulson is George's boy and Geitner will be Barack's boy. The buck has to stop with them. Lieutenants do not run the show, it's the General.

[darthdarcy]

Right, If Obama replaces Sheila Bair then we know he is a Bilderberg Group, Goldman Sachs stooge and puppet...

Simple as that...