Anyone who doubts that our financial system remains a combustible stew of greed, inadequate regulation and perverse incentives need look no further than “Bull by the Horns,” a blunt new memoir from Sheila Bair, the former chairman of the Federal Deposit Insurance Corp.
Bair piloted that agency through the darkest days of the financial crisis, consistently advocating a tougher stance toward the financial giants whose recklessness -- abetted by slavish or inept regulators -- was responsible for the mess.
A feminist Republican, Bair believes passionately in the importance of strong regulation and government service. She has a wide populist streak, yet she’s also a capitalist, and she understands banking.
Perhaps as a result of this unusual perspective, she’s delivered an unusually blistering recollection of her five years in office as well as a sobering assessment of the financial system she helped oversee -- a system still infected by what Bair calls “a culture of greed and shortsightedness.” It’s a wonkish book -- be prepared to accompany the author as she re-fights the Battle of Basel II, for instance -- yet also an endearing one.
As a homeowner, Bair gets treated by a big bank just like so many other Americans: It loses her mortgage paperwork, and charges her 5.62 percent instead of 5.26 percent because of a clerical error. When she tries to refinance, it keeps her $700 rate-lock fee without giving her the loan.
She wears $139 suits from Macy’s and owns up to an occasional tantrum. Aboard Air Force One, she doesn’t hesitate to stuff napkins or coasters in her bag as souvenirs.
Most of all, she demonstrates that “the relationship between Washington and Wall Street had become too cozy.”
At one point, for instance, she implies that the Federal Reserve and the Office of the Comptroller of the Currency essentially rigged a stress test in Citigroup Inc.’s favor so the company wouldn’t have to raise so much capital -- and lose a $50 billion tax break.
Key banking chieftains during and after the crisis of 2008 come in for particular scorn.
Citigroup’s management is “bungling,” and Bair doubts that its CEO, Vikram Pandit, is up to the job of running his large, complex and (at the time) deeply troubled institution.
Kenneth Lewis, then CEO of Charlotte, North Carolina-based Bank of America Corp., was seen “as a country bumpkin” by the city slickers who ran the big New York banks, “and not completely without justification.”
At a crucial meeting with federal officials who were about to “forcibly inject” capital into teetering financial institutions, the question on the lips of Merrill Lynch & Co. CEO John Thain, whose firm appeared to be insolvent, was about restrictions on executive compensation.
But these barbs are mere flea bites compared to the fusillade that Bair directs at her nemesis, Treasury Secretary Timothy F. Geithner, who is portrayed as an enabler of Wall Street recklessness and a tool of the big banks -- one devoted in particular to the aid and comfort of Citigroup, where “Geithner’s mentor and hero, Bob Rubin,” was a director.
In Bair’s book, Geithner symbolizes everything that was wrong with the government’s approach to financial regulation and crisis resolution. She finds him at least partly to blame, during his tenure atop the Federal Reserve Bank of New York, for letting the banks run wild.
She also blames him for what she sees as a wildly over-generous series of bailouts, and later for opposing the kind of tough capital requirements and other policies she and her agency advocated.
On top of everything else, in Bair’s view, Geithner was part of a boys’ club that studiously ignored her when important decisions had to be made.
Bair is especially incensed by the bailouts. “What system were we trying to save, anyway?” she asks. “A system in which well-connected big financial institutions get government handouts while smaller institutions and home owners are left to fend for themselves?”
Yet like many ardent bailout critics, she could offer no real alternative for saving all the little people who, for better or worse, depended on the same economy imperiled by the crisis. So, holding her nose, she went along with a bold program that did in fact save the day -- and which she acknowledges was unavoidable.
To her credit, she also pushed for a vast and sensible-sounding program of mortgage modifications (her advice was rebuffed), and later for elements in the Dodd-Frank reforms that would make future bank rescues much tougher on shareholders, managements and boards. Unfortunately, only time will tell if the legislation, which strives to eliminate future bailouts, has also eliminated the conditions that necessitated the last one.
Bair ends her book with some smart suggestions for making the system safer and fairer, followed by a call to arms for voters and taxpayers to demand reform: “Life goes on, as Robert Frost observed. But financial abuse and misconduct don’t have to.”
“Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself” is published by Free Press (415 pages, $26.99). To buy this book in North America, click here.
(Daniel Akst writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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