Sheila Bair

Sheila Bair

This just keeps getting more and more surreal.  Yesterday we heard that Geithner wanted Bair out of her FDIC post because she wasn’t a team player.  Today we find out what specifically she wasn’t a team player on.  First, the Citigroup takeover of Wachovia:

Fargo & Co. days after agreeing to back an initial deal with Citigroup. Geithner was concerned that allowing the Citigroup transaction to fail would inhibit other lenders from working with the FDIC on any subsequent rescues, the people said.

Wells Fargo offered about $15 billion for Wachovia, compared with Citigroup’s $2.2 billion deal to acquire Wachovia’s banking operations, and didn’t need any FDIC aid.

Yah.  Like banks are going to refuse to take over their competitors for cents on the dollar because one deal fell through while the rest have worked.  More to the point, Wells Fargo made a far better offer, for taxpayers and for Wachovia, since unlike Citi it wasn’t going to lay off nearly as many people and it didn’t need a subsidy.

Citigroup’s position weakened, with its shares losing as much as 65 percent after the failed Wachovia deal amid a collapse in investor confidence — precipitating another rescue attempt.

Again, Bair held out for concessions as the Fed and Treasury sought to shield Citigroup from losses in its holdings of toxic assets. Bair insisted on getting preferred shares for the FDIC in the New York-based bank. She also demanded that Citigroup agree to implement mortgage modifications according to a model developed by her agency.

At one point during a Nov. 23 Fed board meeting about the Citigroup rescue, Chairman Ben S. Bernanke stepped out to take a call from Treasury Secretary Henry Paulson. Returning a few moments later, Bernanke told his colleagues that the secretary was still locked in negotiations with Bair, whose demands were delaying the deal.

It’s hard to comment on this, because the cupidity and stupidity quotient is so high it’s turning into a black hole that sucks all reason out of the room.  

First: This proves that Citi was not a good bank to buy Wachovia.  You want strong banks to take over weak ones.  Citi taking over a bank with impaired assets of its own would have been the lame helping the crippled and it would have still wound up needing a rescue.

Second: Bair held up the Citi deal (250 billion dollars of bailout) in an attempt to make sure that taxpayers got at least some collateral and to demand Citi helped ordinary people.  That indicates Bair was doing her job, which is to protect ordinary people, not to give free money to corporations for nothing in return.  The people not doing their jobs were Paulson and Geithner, who wanted to give money to a failed corporation without any meaningful protection for the taxpayer.

Geithner and Paulson: "Our job is to give banks as much money as they need to succeed, while leaving the same people in charge, and not asking for enough collateral so that taxpayers could ever recover their money".

Bair "my job is to help banks, but at the same time to protect taxpayers and try and help ordinary Americans"

What this proves to me is that Geithner’s personal judgment is awful.  He was on the wrong side of all of these arguments, the side that said "just throw money at the problem and don’t demand any meaningful change, any meaningful taxpayer protection or any meaningful help for homeowners".

He was, simply, wrong.  He wanted to do the wrong things.

Bair wanted to do the right things.  Granted, she didn’t go as far as I’d like, but given she was in negotiation with "give away everything Hank and Tim", I don’t think she can be blamed for that.  

Bair’s judgment, in every case listed, was better than Geithners.  EVERY SINGLE TIME.  

Bair needs to become Treasury Secretary.  Geithner, whose judgment is clearly awful, needs to be a second ranker, in charge of nothing but implementing the decisions of someone such as Bair, who actually has good judgment.  His opinion should be solicited only so that his new boss knows what not to do.

Related posts:

  1. Pretending to Protect Citizens from Banks
  2. Bankster Bluster Leads to Legacy Loan Program Fail
  3. Barofsky Report: What Happened to All That TARP Money?
  4. Bank of America Screws Taxpayers Coming and Going
  5. FDIC’s Strategy for Keeping its Head Above Water