Former regulator Sheila Bair on the financial crisis

Sheila Bair speaks at The 2009 Women's Conference held at Long Beach Convention Center on October 27, 2009 in Long Beach, Calif.

It may be too early to assign blame for Europe's economic crisis, but it is not too early to figure out what went wrong in this country back in 2008. Sheila Bair headed the FDIC back then, and is out with a new book this morning, in which she says she saw signs of trouble in subprime mortgages way back in 2006.

The book is called "Bull By The Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself."

Looking back on her handling of mortgage standards, Bair says, "I did everything I had within my power to do. We worked and pushed very hard to tighten lending standards for both non-traditional mortgages as well as subprime mortgages."

Her time at the helm of the FDIC was also one of many battles, including ongoing disputes with Timothy Geithner, who was then the head of the New York Fed. Bair cites their fundamentally different viewpoints about the world as the basis for the tension. "He, I think, viewed the large financial institutions as entities that needed to be supported, because he viewed them as central to the functioning economy," she says. "And I realized their importance to the economy, but I wanted them to have accountability."

Jeremy Hobson: It may be too early to assign blame for Europe's economic crisis, but it is not too early to figure out what went wrong in this country back in 2008. Sheila Bair headed the FDIC back then, and is out with a new book this morning, in which she says she saw signs of trouble in subprime mortgages way back in 2006.

The book is called "Bull By The Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself."

Sheila Bair, good morning.

Sheila Bair: Good morning.

Hobson: Well do you think, looking back, that you did enough to raise red flags? Should you have screamed louder?

Bair: Well, boy, and I got so much criticism for just doing what I did. Looking back, I think actually on mortgage standards, I did everything I had within my power to do. We worked and pushed very hard to tighten lending standards for both non-traditional mortgages as well as subprime mortgages.

Part of the problem here was that banks had regulation, but non-FDIC insured banks were not subject to regulation, and so you had this kind of race to the bottom in mortgage-lending standards.

So we met some resistance to that, as I recount in my book. And by the time we finally did get tighter lending standards in the summer of 2007, boy, so much of the damage had already been done.

Hobson: Now you don't paint a very pretty picture of the relationship between the various regulators -- in particular, your relationship with the New York Fed, which was at the time headed by Timothy Geithner. What was the issue there with you and Geithner?

Bair: Well, I think Tim and I just had profoundly different ways of viewing the world. He, I think, viewed the large financial institutions as entities that needed to be supported, because he viewed them as central to the functioning economy. And I realized their importance to the economy, but I wanted them to have accountability.

In 2009, when the system was stabled, I wanted to launch programs that would have forced banks to cleanse their balance sheet; to sell off a lot of these bad assets. He was not particularly supportive of that approach. So there was little accountability, and also, I think our economy continues to suffer today because we just never dealt with a bloated, inefficient financial sector. We propped it up the way the Japanese did; we didn't have them take their medicine.

Hobson: Well do you think that looking back, then, that we are going to look back at the crisis and the government's response to the crisis, as a bunch of people acting honorably and selflessly and in the interest of the country; or that we will look back and see a rather pathetic picture of people acting in their own interest, or in the interest of these Wall Street firms?

Bair: I think we will look back and see a regulatory response and a Congressional response that was unwilling to show independence to these large financial institutions and that at the end of the day -- not withstanding the rhetoric -- implemented policies that were highly friendly to these institutions.

I don't think that's nefarious; I think it's a skewed perspective. I think Tim Geithner is an honorable person, and he did what he thought was right. But what he thought was right was saving institutions like Citigroup. He identified saving them with saving the country, and they are two very, very different things.

Hobson: Final question -- you're a lifelong Republican. You write in the book that you voted for John McCain in 2008. Are you planning to vote for Mitt Romney this time around?

Bair: I am very disappointed in Mr. Romney. I am aghast at the recent statements that he made; they were on YouTube. I think he has a lot to explain. I am also, though, disappointed in Mr. Obama. I think his policies have been Wall Street-friendly through his economic team. I think he's got the worst of both worlds -- Wall Street doesn't like him because he's been publicly critical, yet his administration has performed policies that are pretty friendly to them.

So at this point I have to say I'm probably going to write in Jon Huntsman. He was talking about financial reform during the debates; good for him, he was really the only one. I wish this issue would become more of an issue in this presidential race. I'd like to hear both candidates talk about it more; show independence from these financial interests. But I'm not really hearing that yet.

Hobson: Sheila Bair, former chairwoman of the FDIC, also author of the new book "Bull By The Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself." Thank you so much for talking with us.

Bair: You bet, happy to be here.

 

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...