Friday, April 3, 2009

The seemingly criminal Sheila Bair*

I am not opposed to the Geithner Plan – but the execution is bordering on criminal.  This article in the FT runs as follows:

Bailed-out banks eye toxic asset buys
By Francesco Guerrera in New York and Krishna Guha in Washington 
Published: April 2 2009 23:20 | Last updated: April 2 2009 23:57

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership - which provide generous loans to investors - are intended to help banks sell, rather than acquire, troubled securities and loans. 

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

It is so blatantly obvious that the people that should not participate as buyers in the Geithner funds are the conflicted.  This was first pointed out by Steve Waldman – but I thought his dark thoughts were too dark.  However Clusterstock argues that Sheila Bair is seemingly oblivious to the corruption possibilities.

She isn't seemingly oblivious.  She is totally captured by JPM and Citi.

After all WaMu was gifted to JP Morgan in a reckless and irresponsible manner and she attempted to gift Wachovia to Citigroup.  It should not surprise me that Sheila Bair continues to act as if she is on the take.  That represents no change in behaviour.

Recommendation:  Indict Sheila Bair if she won't resign.  Indict her now.

*Note - I have always believed that Sheila Bair is either incompetent or corrupt.  She seems to be corrupt - but incomeptence in her case is probably a sound defence.  She should resign before she is (perhaps mistakenly) indicted for corruption.  


# 56 said...

J Hemp, you just do not get it. She is executing for Obama, this is the plan his admin has rolled out. She will not be fired, she will not be indicted. Love your sentiment, but I haven't the slightest idea how you got so far into the weeds. However bad the idea this group will get credit for "trying." That is the bar set for the the Obama crew at this point. Kinds sickening, though expected, no?

John Hempton said...

Au contraire - I think it is an open secret that Geithner hates her.

But she is hard to move. Her appointment is not at the discretion of the President.

Was she executing for Bush last year? I do not think so.

She is just a loose cannon - the bull in the china shop.

Jonathan said...

In my opinion, you have made the point forcefully regarding Sheila Bair's activities (or, more accurately perhaps, the FDIC's activities as a whole) being incompetent re WAMU.

I don't feel that any argument for corruption has been made forcefully and (again IMO), I think it may well be counter-productive to reiterate these beliefs.

Naming Sheila Bair specifically in your submission to the FDIC over PPIP may have the effect (again, IMO) of clouding your actual message, the content of which is right on.

PPM said...

You've made some pretty inflammatory accusations. Could you provide some background? Some evidence either of corruption or incompetence. MSM has covered her actions to some extent and has been mostly favorable.

Its a pet peeve of mine: calling for indictments and perp walks. Indictments may be coming, but not in a timely manner. Prosecutions of white collar crimes take time. Justice is not a tool of policy. Currently our Justice department is full of barely competent attorneys (at best).

So, the way to get her out (if that is called for) is through embarrassment. Feed the MSM with examples of cronyism, incompetence or corruption. They are looking for someone to pillory, but don't know who, what or how.

Nate said...

Is there any defensible reason for letting banks perform the investor function in the PPIP, given the obvious conflicts? I've yet to see an independent observer make a case for it.

IF said...

While I think you are mostly right (except for the politics), I found it not helpful attacking Bair in your feedback to the FDIC. Nobody there can possibly take you seriously now.

Eidolon said...

Just for the record, John, I do not think you can possibly overstate the case against Bair. It is my belief that the careless and - as time should show, baseless - seizure of WM was the single strongest contributory incident to the status quo. I am actively following with great interest Weil's historic litigation against FDIC.

# 56 said...

Tax Cheat Tim has his hate on because her name has been bandied about as his replacement. And he has not forgiven her early moves to lay claim to the "bad bank" leadership, via the FDIC, when that was a hot idea. She is Bam's girl, they dig her work at the FDIC. She is bullet proof.

Anonymous said...

You are absolutely correct in your callout of Bair. The OTS most likely at the direction of Bair seized WAMU without first providing a letter to inject liquidity. WAMU had 4B sitting in an account at (coincidently enough) JPM they could have injected. Moreover, the OTS records show the WAMU was "Well capitalized" when it was seized. For more details google "wamustory". The facts are in black and white and Bair cannot hide from the facts and evidence.

Anonymous said...

Not that many people pay attention to FDIC and many are still under the false impression that Sheila Bair cares about taxpayers. We all understand investments in stocks, bonds, even mutual funds are risky, but NOBODY, I mean, ABSOLUTELY NOBODY has the right to show such contempt to our deposits and savings that we have earned from working hard all our lives.

I believe a government agency can only function effectively and efficiently if its leader is intelligent and fair. When the leader is corrupt, systemic risk with irreversible consequences is involved and poses a threat to the entire nation. For example, given the scope of the crime, it would be shocking to find only "little" inspectors are responsible for the illegal Indymac backdating and the lack of investigation on Madoff's scam.

If you are seeking for evidence of incompetence and lies by Sheila Bair at FDIC, here is a short list:

Would you consider the following actions as premeditated extortion and blackmailing, and should FBI not investigate them?

"The Federal government committed extortion... His bank is worth in excess of $250 billion, has no bad debt, no credit default swaps, no liquidity problems, and no subprime loans... The FDIC — with Treasury backing — threatened to conduct public audits of his bank unless his board created and issued a class of stock for the Feds to buy"

Here is another case involving FDIC threatening Wachovia and this one is under SWORN AFFIDAVIT:

In October, 2008, WSJ reported this “sworn affidavit filed this weekend in federal court by Wachovia Corp. Chief Executive Robert K. Steel… “Wachovia was under tremendous pressure from Citi and the regulators to conclude a transaction with Citigroup with definitive agreements by the following Monday, October 6, 2008″… The Company’s advisors and I told the board that we believed that unless a definitive merger agreement was signed with either Citigroup or Wells Fargo by the end of the day Friday, October 3, that the FDIC was prepared to place Wachovia’s banking subsidiaries into receivership,” Mr. Steel said in the affidavit.”

This chart shows the biggest drop in Dow Jones Industrial Average occurred at the beginning of October, 2008, around the same time FDIC wiped out Wamu bondholders:

Worse, after it destroyed the bond market, with only $19 billion in reserve to guarantee over $4 trillion in deposits, how does FDIC have any money to back bank bonds? This is a simple math problem that even a fifth grader can figure out.

Does it make sense that FDIC is helping JP Morgan raising more money than it paid for Washington Mutual WAMU ($1.9 billion)?
JP Morgan launches $5.85 bln FDIC-backed notes-IFR

Citigroup Raises $12 Billion in FDIC-Backed Bond Sale

Goldman's inaugural $5 billion sale is the first test as U.S. banks line up to sell bonds guaranteed by the Federal Deposit Insurance Corp.

Tell me why Sheila Bair is still at FDIC when the agency has failed in "examining and supervising financial institutions, and managing receiverships" and treating "all employees, insured financial institutions, and other stakeholders with impartiality and mutual respect." Tell me why FDIC is helping Morgan Stanley selling bonds in Hong Kong instead of focusing all its resources on us taxpayers; towns across the US is suffering as a result of continuous bank seizures and more importantly, the painfully slow followup.

Furthermore, who gave Sheila Bair the authority to "expect her agency [to] finance as much as $500 billion in purchases of residential and commercial real estate loans" for Geithner's "legacy" asset program? What is this stupid suggestion box on the FDIC website about Legacy Loan Program when the reserve is currently at $19 billion and Congress hasn't even approved its Depositor Protection Act of 2009 (sorry it has now been UNETHICALLY AND SNEAKILY inserted into Credit Card Accountability, Responsibility and Disclosure Act)? Besides, didn't she write a letter to banks recently declaring potential FDIC insolvency this year?

Her original request to raise bank fees would net her $27 billion, not the $100 billion the House gave her, not the $500 billion the Senate plans to give her. Where in FDIC's mandate does it say FDIC fund can be used to guarantee "legacy" assets, especially when that fund is "borrowed" from taxpayers (up to $500 billion from the original $30 billion) and not even from bank premiums?

By the way, Isn't it criminal to create a bank run, a nationwide panic, when "the money is always there for depositors?"

What Sheila Bair said:

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry."

What she said a few days later:

"Bair says FDIC has enough money but wants cushion"

Isn't it criminal for a public official to lie in public?

What Sheila Bair said:

March 4, 2009
"No Taxpayer Funds Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.” "

What happened:

March 6. 2009
"The Federal Deposit Insurance Corp. may reduce an emergency fee on banks to bolster reserves if Congress expands the agency’s borrowing authority with the Treasury Department to $100 billion, Chairman Sheila Bair said"

The Depositor Protection Act of 2009 (Credit Card Accountability, Responsibility and Disclosure Act): Up to $500 billion borrowing power by FDIC

What Sheila Bair said:

"Banks shouldn't be too big, says FDIC's Bair... Bair said one way the FDIC could become the systemic risk regulator for more financial institutions is if Congress gave the agency authority to oversee bank holding companies, which are currently under the Fed's authority."

What FDIC did:

FDIC Sold Wamu and Wachovia to make JP Morgan and Citigroup bigger

By the way, it really confuses me when regulators start talking about demanding authority to take over bank holding companies:

"Under the proposal, the Treasury secretary would have the authority to seize and wind down a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board."

Sheila Bair said that "[w]ithout a system that provides for the orderly resolution of activities outside of the depository institution, the failure of a systemically important holding company or non-bank financial entity will create additional instability as claims outside the depository institution become completely illiquid under the current system."

Instability? Illiquid? That's the excuse for not taking over the banking divisions of Citigroup or BAC when they are probably more insolvent than Wamu? Hey, if the Treasury and FDIC don't care about destroying the ENTIRE bond market after seizing the banking division of Washington Mutual Inc, then why pretend now?

You all just want more power so instead of making GS whole in the dark, you can do it out in open and tell America it is legal and within your jurisdiction.


Anonymous said...

Here is the latest evidence to support Sheila Bair's incompetence; FDIC helps these banks raise billions in capital via bond guarantee and they don't even care to give her a bit support on her loan modification plan...

So the same question again: Is Bair incompetent or is she corrupt but pretending to care?

"Revised mortgage terms fail to curb defaults
Report shows most loan modifications don't lower payments. Delinquencies among prime borrowers soar...

Bair, a leading proponent of lowering loan payments to combat foreclosures and the damage they inflict on the economy, said many banks and loan servicers continued to provide only temporary relief to borrowers.

The report "unfortunately demonstrates a continued reliance by many servicers and lenders on repayment plans and modifications that do not reduce the borrower's monthly payment," Bair said in a statement.

Produced by the Treasury Department's bank regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, the report analyzed mortgages serviced by 13 large financial institutions, representing about two-thirds of all the outstanding home loans in the country.

The companies included such first-round recipients of the government's bank bailout funds as Bank of America, Wells Fargo, Citigroup and JPMorgan Chase, which collectively have received $145 billion in government money. ",0,4466775.story

"Aid to Borrowers Not Preventing Rising Delinquency... More Help but More Defaults, Report Say"

I will have to go with she is corrupt. No college professor can be dumb enough to believe bankers would make less money at their own expense.


Anonymous said...

Like I asked, WHERE IS FBI???

"F.D.I.C.’s October agreement with JPMorgan Chase and Washington Mutual allows Chase to pick and choose which of the city’s 148 Washington Mutual branches it will keep. Chase will then turn over the rejects to the F.D.I.C. But here’s the kicker: According to sources, the F.D.I.C. [CAN THEN SIMPLY TERMINATE THE LEASES OF THOSE REJECTED BRANCHES, ALL CONTRACTUAL OBLIGATIONS VOIDED...]

-I am Lanlord for on of the WAMU Location I don't know who to talk to about this Lease or how to pay my Mortgage.
-I believe we spoke with each other. WaMu moved out as of 2/10/,leaving me with an empty building and half a million loan with Chase-WaMu. FDIC legalized the cherry pick by Chase without obligations.Jamie Dimon is really a very smart banker and good bzman,but at the price of all WaMu contractors, landlords,shareholders,etc.
-I got the same situtation. They stopped rent payment. I can not pay the mortgage and will lose the property."


Mike said...

Please check out to see how Sheila Bair has assisted in destroying billions of dollars in personal property and value.

Anonymous said...

John, I like your blog a lot but I think on PPIP program, you miss this one.. FDIC is going to determine the funding that it will guarantee which essentially the max price that the loan pool can be sold for. So if bank A want to bid in excess of what FDIC want to guarantee, they won't be able to do so..

The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee.

Anonymous said...

Congrats John!

COP just confirmed Sheila Bair's incompetence!

"The COP report reiterated that in either a receivership or conservatorship, the FDIC can remove failed managers from these institutions, as well as sell assets at current market value, which would raise funds and remove bad assets from the bank’s balance sheet. The FDIC can also sell off parts of the institution’s business, meaning it could “break up one or more large, systemically significant institutions into several smaller, more manageable banks.” The process has worked in the past — and more than a dozen times so far this year — without consumer panic, the COP noted, because of the FDIC’s long-standing reputation as a conservator. The liquidation method has its drawbacks, as well, report authors said.

“Some investors would nearly always be wiped out under liquidation or reorganization strategies,” panel members noted in the report. “This is a harsh outcome, but the investors also reaped profits during the good times, for which they agreed to take the losses when things went sour.”"

This report proves once and for all Sheila Bair needs to be fired! FDIC not only wiped out shareholders, but also handed JP Morgan Wamu assets that it was suppose to sell at market value.

FDIC failed its mandate in Wamu and Wachovia, as well as illegally voided Wamu contracts in NY city!

Taxpayers calling FBI... anyone there?


Anonymous said...

This is just getting better and better... NY Fed report on increased money transfer to ECB after Wamu seizure by FDIC-

"The amounts deposited with the ECB rise from a
daily average of 0.09 billion euros in the week starting September1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."


Anonymous said...

This is just getting better and better... according to this report there was a huge increase in money transfer to ECB after Wamu seizure by FDIC...

"The amounts deposited with the ECB rise from a
daily average of 0.09 billion euros in the week starting September1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."

Does this mean FDIC seized Wamu for a $15 billion bank run but by the same action, FDIC caused a bank run from the US banks to ECB on a daily average of about $160 billion?

Complete incompetence!


Anonymous said...

I am no number expert so can someone please confirm my interpretation on the Fed report, that after Wamu was seized over $160 billion was deposited daily to ECB from the US banks?



Anonymous said...

Please make a note on my previous post on FDIC selling Wamu and Wachovia to make JPM and C bigger I meant to say "tried to sell" Wachovia to make C bigger.

I know WB was eventually sold to WFC but FDIC was planning to broker the deal with C.

Regardless the idea was FDIC's actions or intended actions ended up increasing the size of these banks, contradicting Bair's statement.

Sorry about the mistake on my initial post.


Anonymous said...

"The amounts deposited with the ECB rise from a daily average of 0.09 billion euros in the week starting September 1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."

My original interpretation was wrong. I now believe what FDIC's Wamu seizure may have caused was a huge reduction in lending; banks everywhere started hoarding money. I am deeply sorry for this mistake.


Anonymous said...

Wamu TRUTH...Please Help...Wamu TRUTH...

Jamie Dimon planted "moles" in Wamu??? JPMorgan committed corporate fraud???

Wamu's claims against JPMorgan/Chase;

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