It is no secret that I do not like Sheila Bair. My original reason for dislike was posted here.
But now she is open to deliberately allowing massive fraud against US Taxpayers.
There is a serious conflict of interest problem with the Geithner Plan. These problems were first outlined by Steve Waldman in his “dark thoughts” post. I noted that the application terms for the Geithner funds seem guaranteed to maximise conflict of interest.
In short – if you have a small interest in a fund (kindly levered to be large by the US taxpayer) and a big interest in a bank you have a massive incentive to overpay for the assets purchased from the bank sticking the losses to taxpayers and thus increasing the value of your bank holdings.
The defence of course is to have strict separation between the banks selling the assets and the Geithner Funds buying the assets. Arms length separation is thus a basic and minimal requirement of the Geithner Plan.
However Sheila Bair is now open to letting banks selling assets participate in the Geithner funds. This was reported in the WSJ – hat tip to Clusterstock.
I guess Sheila Bair can’t see a conflict of interest – only a “convergence of interest”.
However designing the plan to maximise theft is designing the plan to fail. This is American politics – and rampant deliberate tampering with government procurement (ie criminality) is a possibility – but in Sheila Bair’s case I see only incompetence.
I am naturally attracted the Geithner plan. I have stated that many times – but now I am plain sickened. Sheila Bair should be removed from office if the Obama administration is to have any chance of succeeding. This statement potentially maximising conflict of interest – and the possibility that criminal fraud is the driver – should be enough to impeach her. Her defence – and in her case it is a solid defence – is incompetence. And that determines the right outcome. She should resign.