Guest Post: Is Sheila Bair an Unsophisticated Hick?

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Served by Jesse of Le Café Américain

“Flagrant evils cure themselves by being flagrant; and we are sanguine that the time is come when so great an evil…cannot stand its ground against good feeling and common sense…” John Henry Newman

The reporter on Bloomberg television just mentioned as a snide, smirking editorial aside, that Sheila Bair feels that a million dollars is a lot of pay for one year, and that ten million is excessive for a deposit taking institution. He noted that she is obviously a Washingtonian, and not a New Yorker.

That’s right. A million dollars annual pay is ‘nothing.’ Even ten million is not much pay for an average Wall Street banker that is taking billions in public funds and gaming the financial system.

The obvious implication is that Ms. Bair is some hick regulator who is not as sophisticated as, let’s say, Larry Summers, Tim Geithner, or Ben Bernanake when it comes to rewarding their Wall Street cronies for allowing the economy to continue unimpaired.

Perhaps he was attempting to sneak a bit of irony into the propaganda that passes for news in the States these days, but it was not obvious.

But he might be right. When the monetary inflation from all this financial corruption hits, a million dollars per year might yet be a ‘livable wage.’

And so goes the “downward spiral of dumbness.” Keep these metrics in mind when you look at your next credit card bill, mortgage payment, and paycheck, rubes, and send your tribute to Caesar.

Bair Says U.S. Regulators Should Set Pay Standards for Banks
By Alison Vekshin and Erik Schatzker

Aug. 5 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should set pay standards for U.S. banks to ensure incentives encourage long-term performance without setting specific dollar limits.

Banking agencies should “become more active” in using existing authority to set compensation standards that are “principles-based,” Bair said today in an interview with Bloomberg Television in Washington.

“We do need to revamp the system to make sure that the incentives are long-term,” Bair said. “I do wish some of these firms would exercise better restraint and common sense on what they’re paying their folks.”

Bair echoed concerns of House Financial Services Committee Chairman Barney Frank and other lawmakers who say government needs to write compensation rules that discourage excessive risk taking. Goldman Sachs Group Inc. set aside a record $11.4 billion for pay and benefits in the first half of 2009, up 33 percent from a year earlier and enough to pay each worker $386,429 for the period, the company reported last month.

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  1. asphaltjesus

    Having regulatory agencies set compensation dangerously misses the point. They will be outmaneuvered within hours of passing meaningful legislation that they helped draft anyway.

    Somewhere in the accounting/finance/regulatory(?) structure of these banks they are able to extract massive compensation. The reinstated Glass-Steagall firms just couldn't support exorbitant renumerations.

    I know Yves disagrees with the idea Glass-Steagall should be reinstated, and she's got a valid point. But maybe it's a good start?

  2. Oregon Guy

    There is a campaign being launched against Ms. Bair. See for example the post "Mr. Bailout" at the usually more circumspect "Economist's View".

    She has evil enemies. She has my support for what it is worth.

  3. Alex

    Sheila Bair has always clashed with Timothy Geithner/Henry Paulson et al. For what it's worth, when she (or Elizabeth Warren) make suggestions I don't automatically start asking who her friends are or how many Goldman alums work in her office.

  4. Jesse

    I strongly favor the reinstatement of Glass-Steagall.

    I did not know that Yves was opposed to that.

    I am curious to hear her reasoning, perhaps when the book is done. I respect her immmensely.

    The problem with putting all your regulatory eggs in one basket, even with someone you like such as Sheila Blair in the job, is that you cannot predict who will be in the job next. Greenspan? Yikes!

    Systemic organization follows function, not personalities.

    Remember how the Federals kept interfering with the states during the pre-scandal Spitzer AG era?

    Too easy to control or buy a strong central power.

  5. Hugh

    I favor a return to Glass-Steagall. It would be a good way to deal with many aspects of the TBTF question.

    I don't always agree with Bair, but she has been one of the few voices speaking up for the concerns of ordinary Americans and holding banks to some kind of account. Both of these put her at odds with Geithner and Summers who don't give a tinker's damn about ordinary Americans and believe that the best way to deal with the financial crisis is to give the banks everything they want and not ask any questions.

    Consolidation in the media and its ownership by large corporations has turned it into a vocal supporter of the status quo, which is to say corporate interests. Whoever challenges these is immediately painted as shrill and worthy of ridicule.

  6. Capricorn

    Jesse, I'm sure Yves will clarify her own position on Glass-Steagall, but in her comments on "Bair and Bernanke back size disincentives for Banks", she wrote:

    "Glass Steagall v. 2,0 would have a large impact on Citi, JP Morgan, and Bank of America. I'm not opposed to that, but this move has the effect of singling them out without doing anything to Morgan Stanley or the great (from a reregulation standpoint) untouchable. Goldman.

    Seems pretty clear to me. Am I missing something?

  7. mannfm11

    Maybe they should get rid of FRB altogether so these frauds cannot continue. I agree with Jesse, that Glass-Stegal should be repealed. What should also be done is too big to fail should be broken up and deposit insurance should either be discontinued or lending for the game of leveraged speculation should also be ended. Eli Manning got a sizable contract today, but Eli has won the Super Bowl and heads up a team that is much more important than the Goldman Sachs team. The Fed won't step in and guarantee his contract if the Giants go down either, nor will an interception or a TD pass change anything financially on the outside except whether some idiot wins from or owes his bookie. The idea that Blankfein can command the entire pile of money Eli is guaranteed while looting the company he works for and the country in which he lives is absurd. Same for Dimon and Sandy Weill before him. Banking starts out as fraud and continues as such until we reach the point of implosion, at which we are today.

  8. Jesse

    Glass Steagall would prohibit Goldman and Morgan Stanley and the other 'investment banks' from masquerading commercial banks, obtaining deposits, and presumably the subsidy of the Fed, while continuing their casino investment style of trading.

    It would begin the process of breaking up the too big to fail mega banks. But I agree we must go further and tighten up some of the bank holding company restrictions as well.

    But the key I think is access to government 'guarantees.'

    Taking JPM down a notch is a good thing, not to be overlooked. It is probably more systemically dangerous than Goldman, which seems more of a politically corrupting influence to me.

  9. Peter T

    When I was reading the title of the posting, I was thinking, too: another campaign against Ms Blair from the super hick of them all, Timothy Geithner. I am far from being a feminist, but in this drama it seems that the women (Blair, Warren) are far better for us than the men (Geithner, Bernanke, Summers).

    To Glass-Steagall 2: As I understood it, banks would become like utility companies again, strongly regulated, with low but steady profits. On the other hand, investment banks would be unregulated like hedge funds and would swim or sink on their own. The problem seems today that too many banks (utilities) would go down if a big investment bank would collapse.

  10. Anonymous

    I think regulating pay is a very slippery slope. Where do you draw the line? Are hedge funds fair game, for example (LTCM supposedly threatened to destroy the system). How about GE? Or GM and F in 2007?

    It'd make a lot more sense to let them pay themselves whatever they want, and let them fail when they screw up. If you're worried about moral hazard, just limit their size (or the size of their bets) AND VIGOROUSLY ENFORCE THOSE LIMITS WITH DRACONIAN PENALTIES and be done with it.

    Hell, even a prosecution somewhere might do something.

  11. Anonymous

    To Glass-Steagall 2: As I understood it, banks would become like utility companies again, strongly regulated, with low but steady profits
    Profits from where??? We're about to enter the worst depression in US history!!

  12. Peter T

    I said that banks should become strongly regulated, with low but steady profits, and anonymous asked:
    > Profits from where??? We're about to enter the worst depression in US history!!

    I have no doubt that the financial sector is far too big in relation to the rest of the economy. I read that in 2006, about 40% of all profits were made by financials, which is crazy and theft by the financials – we know now, of course, that these profits were illusions (the bonus payments though were not). We need shrinking in the regulated banking sector. The rest of the financials should fend for themselves, and many will go under if we let them.

  13. fresno dan

    I think this (keeping the idiotis at high pay) is the logical outcome of saving people who invest idiotically (by saving their "investment" banks) and the people they have who run their corporations.
    What is astounding to me is that the free market has a clear objective criterion for deciding what business should continue…like not going bankrupt. Its like Orwell – success is failure, idiocy is intelligence, theivery is honesty.

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