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Sheila Bair on Bill Moyers: “Libor Always Troubled Me”

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Bill Moyers starts with the Libor scandal as a way to get Sheila Bair’s perspective on the failure to get meaningful bank reforms. It’s refreshing to see how direct she is in saying the fixes aren’t hard, the problem is lack of will. She also discusses the death of moderate Republicans, and “free for all markets”.

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26 comments

    1. F. Beard

      Yep. Also, she claims to be a “capitalist” but is in favor of allowing the banks to use government insured demand deposits – just not for derivatives.

      She also has no problem with large banks per se. But the larger the bank, the more credit it can safely extend without risk of reserve drains. In other words, larger banks can counterfeit more.

  1. John Regan

    We’re not going to regulate our way out of this, it is way too fundamental:

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-ii/

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-iii/

    It is the nature of the money system itself to bring us to this point. The lying and cheating of the ruling class would be better handled by private remedies for those who have been victimized, but that is not possible currently because the money system has eroded the rule of law in the courts.

    This while thing is a matter for lawyers, not economists.

    Real lawyers, I mean.

    1. Min

      Not going to regulate our way out? Maybe not, but the regs put in place as part of the New Deal worked well, averting financial panics for half a century, where they had been regular occurrences before.

  2. Conscience of a Conservative

    Sheil Bair: “I don’t want the government setting interest rates”. She should’ve said that to herself quietly before saying it out loud.

    1. Conscience of a Conservative

      It is a shame that we have not been more aggressive on the banks, and she’s 100% right that the banks have turned the truth on its head by saying higher capital standards and reigning in the banks would hurt the consumer

    2. F. Beard

      Government deposit insurance, which Sheila supports, is a government subsidy of banks’ borrowing costs. Otherwise, the banks would have to pay higher interest on deposits to cover the risk of losing them and/or pay higher private insurance rates.

      Sheila, you are a hypocrite! But that’s an occupational hazard for those who support banking.

  3. Anon48

    I watched the Moyer’s and Company Bair interview on TV. I like Sheila Bair. Two things that caught my attention(and I’m paraphrasing):

    1. She noted that because Congress is influenced by lobbying dollars, they will tend to pull the reins on regulators whenever too much attention becomes focused on their benefactors. She further noted the only solution would seem to be if the general public were to start to contacting their Congressmen in large numbers to act as a counterweight to that pressure. (Sadly I don’t see that happening)

    2. I didn’t recall her acknowledging anywhere, that it has been a general lack of enforcement as the most fundamental cause of questionable behavior in the financial industry and that her office itself, may have been forced to pull its punches as a result of item #1.

    If she’s going to be a former regulator who’s coming out of the closet, then go full bore. She should admit that she herself may have failed to pursue miscreants because of the negative impact that kind of pursuit may have on even a senior level government leader’s career. We need people in her position to clearly come out and say that out loud.

  4. PaulArt

    Its a fine example to show how the ignorance of a talk show host can seriously dilute the composition and intent of an interview. I am a great fan of Bill Black but I thought he was a little over the top there with his ‘IT WAS A CARTEL…’. Libor was always set by a group of banks, no? So it was always a cartel. I thought the problem was in the way they were allowed to use judgement instead of actual transactions to report the interest rate. Bair alludes to this but then it floats lazily and right above Moyer’s balding pate. Bair then follows up with this doozy, ‘…I don’t believe Government should set interest rates’. Well, that was the attitude that got us into this whole mess. Nice dance there by Bair. Its not surprising that NPR/PBS would go running to Bair for wisdom as if she is some kind of a hard line regulator like Born for instance. I would guess that some clever dick in PBS upstairs suggested Bair’s name to Moyers and Moyers being the rube bought it hook, line and sinker. Maybe its part of a Obama PR plan to bring her back into the spotlight for a possible Fed Chair position? Sorry my ‘CynicismSet’ dial broke in 2000 and am unable to find a replacement ever since.

    1. Bill Michtom

      Hey! As the proud possessor of a bald pate, I resent the comment. I was the first person to question Bair on this thread, apparently despite my bald pate. ;-)

    2. Yves Smith Post author

      You really need to get your facts straight on this.

      1. Born was not around at the CFTC long enough to be proven as a regulator. Advocating regulating CDS was super important, but making sure she COULD regulate them does not tell us how she WOULD HAVE regulated them.

      2. Just because Bair is a Republican does not mean she was not a decent regulator. You haven’t cited one item in her record at the FDIC to point to a lack of regulatory chops. She fought regularly with Geithner and Paulson during the crisis. They regularly cut her out of information and presented her with faits accompli. She wanted Vikram Pandit fired and Citigroup broken up, and Treasury undermined her big time on that. She did manage to force Citigroup to downsize considerably and sell off quite a few operations.

  5. enouf

    Why didn’t he ask her about her prior $10,000,000 USD per household from the Fed’ ZIRP discount window proposal (with a 30yr repayment schedule sounds about fair)? It’d only cost 2.5 Quadrillion.

    Love

    1. michael nola

      Her article was satire, lampooning the ridiculously low interest rates the Fed charges banks, and how easy it is for the banks to make money simply by buying Treasury bills.

  6. lonhhh

    The easiest solutions are reinstating Glass-Stegall and capping a FDIC-insured bank’s deposits at no more than 2% of the country’s total.

    Never going to happen as the current “socialist” administration and the GOP are in the pocket of the big banks.

  7. dan

    I don’t understand this obsession with Bair as a good regulator. Didn’t she green light derivatives at the CTFC in 1993? And what was her response to the OC bankruptcy caused by derivatives?

    She seemed to be around from the beginning of this timebomb. Appointed by both Bushes?? Don’t get why she has credibility.

    1. Yves Smith Post author

      In case you missed it, futures ARE derivatives.

      Currency and FX swaps had been unregulated for over a decade before the 1994 interest rate derivatives blowup. I have to tell you there was no way any regulator could have swum against the tide in 1993, given the lack of apparent problems AND the much more powerful Fed Chairman, Greenspan, being loudly in favor of leaving them alone (Bair critics like citing a 1993 Bloomberg article in which she says she like derivatives. Tell me how long the head of HUD would last if he said, “I hate housing” or merely, “I want to stop the growth of the housing market”? Or the same with the head of the FDA: “I hate drugs”).

      You need to read Frank Partnoy on what happened in the wake of that episode, he chronicles it in detail in his book Infectious Greed. Short form: tons of investigations, and the banksters kept stonewalling and pushing back long enough on reform efforts so as to run out public interest. Oh, and key industry lobbyists (Mark Brickell) got the ear of key Clinton administration figures (Partnoy fingers Arthur Levitt at the SEC, who also sided against Born over CDS).

      1. gs_runsthiscountry

        Sheila Bair dissented on the “exemptions of energy contracts” in the CFMA. And, thus, went against the grain and the likes of Wendy Gramm back in 1993. That should be enough for anyone to understand her integrity.

        wiki: commodity futures modernization act, and scoot down to footnote 20

        that is all

        gs_

  8. bob

    She has some great stories that will never be told…

    Did she grab Wamu in order to get a few billion for it out of JPM? The narrative and the numbers have never added up.

    She is also one of the only people I would put up against Ben Bernanke in a contest to see who would blink first. I would love to hear more detail about their interactions in 2008….

    Bair- The closest thing to a bond vigilante in recent history.

    1. Yves Smith Post author

      I’m having fun playing devil’s advocate.

      There’s a new book on WaMu out which I have yet to read, but apparently it chronicles in considerable detail what a huge fraud factory it was. And it was experiencing a run; I was getting reports on my blog from managers in other banks about huge accounts being moved out of WaMu (remember, when IndyMac failed, unsecured depositors lost big time, mainly businesspeople, since it’s hard to run a payroll of any size and not wind up having unsecured deposits at least around payroll time).

      1. bob

        http://upstart.bizjournals.com/industry-news/banking-finance/2009/12/07/why-federal-regulators-closed-washington-mutual.html?page=all

        Some of that has been changed from the original story. I thought I remember John Dugan made an appearance, in WA, in the original story. It may be in the court filings WRT the bond holders.

        The story still has some very good details and numbers. They were surviving the run, or so it was claimed.

        The number one job of the FDIC is to stop runs, whatever their offical line is.

        Bair- We need some money here…

        Paulson- no, wall st needs it…

        BB- Monetary velocity is correlating inversly with the coefficent of…

        Bair- OK, I’ll just go out and seize a bunch of deposits….

    2. Up the Ante

      “She has some great stories that will never be told… ”

      Just curious what justification she could have for not telling at this stage of the game ?

      beware any apologist

      1. beowulf

        If Romney wins, she’s the least crazy pick for Secretary of the Treasury.
        Gotta watch what you say if you face the prospect of Senate hearings next year.

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