Sheila Bair Talks about Bank Greed, JP Morgan London Whale Hearings on Bill Moyers

Not surprisingly, Sheila Bair was appalled by the revelations from Carl Levin’s hearings on the JP Morgan London Whale losses. She discusses not only what it says about the bank, but about the state of regulation in the US.

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  1. Ms G

    I feel compelled to repost a comment I posted when this was linked in yesterday’s links, only because I think that Bair being appalled about the Whale is not the whole story.

    I stopped watching about 1 minute in when Sheila said with casual assurance that “the system has gotten incrementally safer” — after saying that the Whale hearings were really “shocking.”

    I think Sheila has issues with different parts of her brain living in different dimensions simultaneously — a Schrodinger’s Brain.

    Meanwhile, no mention (I presume) that the policy of settling with banks “without admitting or denying” any wrongful conduct was started on her watch after decades of a policy to loudly trumpet FDIC settlements with banks.

    Sorry, she’s a tool.

    1. Chris Engel

      Moyer isn’t competent enough to hone in on those areas, I don’t think. Also it’s hard to criticize her perhaps on these issues in the mainstream because she’s been one of the few “good guys” (generally) in cleaning up the financial crisis.

      That’s why I’d really like a proper economist-journalist to snag real wonky in-depth examinations of these public figures so we could really get on the record some key policy setting milestones like the “hush hush” FDIC settlements and this idea that Too Big To Fail really is settled just because there are orderly procedures now in place to unwind such institutions.

      1. down2long

        Sadly, I concur with both of you.

        Especially ironic that Bair is discussing JP Morgan Chase after engineering that HUGE giveaway, ahem, I mean sale, of WaMu’s assets to Chase at .06 cents on the dollar, without any conditions attached, which Slimin’ has been liquidating by hook or by crook (pardon the obvious pune) to prop up his balance sheet.

        This after FDIC’s seizure of IndyMac and which Bair implemented a widely successful program of proactive principal write-downs and interest rate reductions to all their borrowsrs in trouble. I knew a repug Bushie who was begind on her loan, got one of those letters, and refused to accept because she wanted more. Typical Tea Party. Everyone losin’ thier homes, she gets a freebie, and she WANTS MORE free. Meh.

        And now CNBC/Huff Post are talking DOJ Criminal Investigation in Whale trades. Friday night float of newsleak tells me they are just teasing us in the echo chamber. But wouldn’t that be nice!!

        A nice perp walk to wipe Slimin’s smirk off his face, forever. Oh, I get chills.

        Obomba is becoming so irrelevant – I keep wondering if he might wise up and see a populist move against the banks as they only way to save his legacy, which don’t look so good now. Health insurers are warning folks once their mandatory health insurance obligations kick in in 2014 to expect a jump in premiums of up to 116 percent. (Yesterday’s WSJ.) Working as designed, I assume.

        1. Stephen Nightingale

          Well the President actually comes from a banking family doesn’t he? His grandmother was a Bank VP in Hawaii.

          In glorious retrospect, we were really sold a line on that one. The MSM story was all about how his grandmother endured pay and promotion discrimination for years. But after all she ended up a VP. You don’t get to that position without watching your back and talking out of whichever side of your mouth the moment requires. Try to home in on the early spin the next time a golden candidate appears.

          I’m cautiously backing @elizabethforma in 2016. She still looks authentic. So far ….

          1. DantheGrey

            Really like your comment about E. Warren. My perception is the same so far and I am currently trying to envoke a conversation with Ms. Warren concerning an ongoing criminal conspiracy involving BAC and others that is being run out of Countrywide’s old offices in California. Sent packet with hard evidence to AG Harris concerning these issues and was totally ignored which just proves that AG Harris was just putting on a dog and pony show back when the 50 state investigation was in full swing. Keep an eye on Warren, she doesn’t have many friends in D.C. but she has plenty of them out here…

    2. beene

      This decision was the promotion of Warren’s book and about as always regulatory capture. Not the errors of the past where almost everyone still believed in the market knows best. Warren has always thought derivatives were a problem in the making. Plus it’s the push by public for criminal prosecutions of what had in the past only been settled by fines for most white collar crimes.

      1. LucyLulu

        ” Plus it’s the push by public for criminal prosecutions of what had in the past only been settled by fines for most white collar crimes.”

        As a member of that public, I have to respectfully disagree that in the past fines replaced criminal prosecutions. I remember well the Lincoln savings and loan crisis from the late 80’s, Enron, and Worldcom. Just last year, several officers were criminally charged, some facing up to 25 years, at Abacus, a small bank that mainly loaned to Chinese immigrants (who repaid their mortgages) for fraudulently underwriting loans sold to Fannie Mae. UBS also faced criminal charges in the Libor scandal. It is only since the GFC that our domestic TBTF institutions that have been given immunity for criminal behavior.

    3. profoundlogic

      One has to wonder in what Utopian universe Mrs. Bair still resides that she is appalled by such behavior. While she’s busy touting her new book, it’s also worth remembering that she’s a life-long Republican. That automatically puts her at odds with the regulation of big business that is needed, particularly when the other party has made it perfectly clear that they’ll be happy to do the job of deregulating the financial industry for them in the name of “progressive” reforms.

      It would seem in her heart, Bair still holds out hope for the grand illusion that the financial industry will do the right thing and self-regulate. That is a joke on the American people, and Mrs. Bair could do us all a favor and abandon that failed ideology rather than make excuses for failed reforms that resemble Swiss cheese (no offense to the cheese).

      1. LucyLulu

        Did we watch the same interview?

        Sheila is critical that financial reform was never implemented as intended and has not done nearly enough to make banking safe the way it should be. Whatever her partisan affiliation, she is very much PRO-REGULATION of the financial industry.

        As to criticism by others of her actions while heading up the FDIC, Sheila was severely hampered by others in the Administration which IIRC, frustrated her no end and led eventually to her resignation. She and Mr. Geithner, in particular, had profound disagreements over policy and my impression was that when they disagreed, he prevailed. JPM’s purchase of WaMu was no bargain, IMHO, unless Dimon manages to bully the FDIC into taking the hit for the losses …. and if he does, should BofA get off the hook for Countrywide????

        1. profoundlogic

          Not saying she isn’t pro-regulation. She seems to have been a capable leader. I just get the sense that she grossly underestimates the degree of regulatory capture, a result of her subconscious political underpinnings.

          1. simon p gruber

            As head of the FDIC she was the individual who guaranteed those little blue signs at the teller’s windows at every bank in America. Now she claims she could not have known what the composition of the banks were?

            So which is the lie, the FDIC signs, or the moron who asserts they are true without knowledge?

            Ignorance is no excuse. It is an admission of wrongdoing, an admission of incompetence, and an admission that she WAS NOT DOING HER JOB. Her and Lenny Brauer are the same person in different genders.

        2. profoundlogic

          I would also add that I believe Bair starts with the false premise that reforms will save the system when the system itself is rotten to the core. What if we have reached the point of no return? What is the Fed really doing to help average Americans? Those, I believe, are better questions. Increasingly, the answers suggest that a total re-evaluation of the system itself is in order.

          The America we’re being sold isn’t the one most Americans experience in their daily lives. What if there is a better alternative to the debt-based, consumption-driven, profit-obsessed culture that is leaving a wake of destruction in its path?

      2. Chris Engel

        She actually made numerous references to how she thinks it’s drastically under-regulated and in need of major reforms above and beyond what has been implemented.

        I think she’s at the tail-end of that generation that has a “lifelong party” affiliation. I don’t hear that stuff as much these days really.

        But anyway she’s working at a Systemic Risk Council and wrote a book since she has left her high-powered position at FDIC.

        I think this, more than anything, shows what her motives are and where her heart/soul is. She could have run off to any bank on Wall Street or CFR or some other ruling the world position. She didn’t.

        She focuses in on the fact that fixing the banking system isnt the same as fixing the economy and that regulators are way too much in bed with the banks, etc.

        As I commented above she deserves a bit more criticism in certain areas but Bill Moyers isn’t the one to press her on it.

        Among the bad actors we have had and still have, Sheila Bair is one of the more principled and ethical of them.

        1. Ms G

          “She could have run off to any bank on Wall Street or CFR or some other ruling the world position. She didn’t.”

          You’re assuming that she had those options. In view of her non-extreme views on deregulation and finance, she may not have had them. The revolving door has very high standards of “purity.”

          1. Yves Smith Post author

            No, she is a huge opponent of the revolving door. She’s said examiners should be a lifetime career and that it would be better if everyone who worked for a financial regulator was prohibited from working in the industry for 2 years. I think the FDIC has a one year prohibition.

          2. Ms G

            @YS — that is one of her great virtues, then.

            I do so wish it could compensate for her poor stewardship of the public interest while at FDIC.

        2. simon p gruber

          if she opposed anything, all she had to do was YANK the BANKs fdic guarantee, rip off the covers, shine down the light and watch the filthy roaches scatter.

          Well, she almost got thru step 1.

        3. dannyc

          i agree with your point about Moyers, but we shouldn’t beat him up for it; he’s all by himself! Who else is there, Margret Warner? Where the fuck is NPR, the New York Times. PBS Newshour, Washington Post…and all the other Foxlites?

          I can’t get out of my head that JP Morgan spent $16 Billion on lawyers!!!! To defend themselves against who the Public? ( Dimon gave $4.6 million to the NYPD just months before Occupy Wall Street broke out. The most OWS ever had in the bank (not jp morgan) was $165,000)

          Then Obama spends $2 Billion to get re-elected and calls Dimon his favorite banker? Chicago, Obama’s home town is closing 53 schools — 53 schools?

          All the money corporations and wealthy donors lavish on PBS should go to Moyers so he can hire some real prosecutors, some real whistleblowers! Mary Jo White comes from the legal culture that prosecutes whistleblowers.

          Sorry Chris, I know you didn’t mean all this, I just get pissed.

    4. from Mexico

      I too believe Bair is being less than forthcoming.

      The most frightening part of this whole thing is that, if the regulators were to get tough on capital ratios as she suggests, and actually mark bank assets to market, there probably wouldn’t be a single solvent TBTF bank left in the United States.

      The TBTF banks in the United States are currently regulated according to the dictates of the Milton Friedman doctrine, which is the same doctrine European banks are governed under. The Friedman doctrine was described by Michael Pettis in one of yesterday’s links:

      The ECB, it seems, is willing to pump as much liquidity into the markets as it needs, so rising debt levels, greater political fragmentation, and a worsening economy somehow don’t really matter. This crisis continues to be just a liquidity crisis as far as policymakers are concerned – and not caused by problems in the “real” economy – and the solution of course to a liquidity crisis is more liquidity.

      But is peripheral Europe really suffering primarily from a liquidity crisis? It would help me feel a lot better if I could find even one case in history of a sovereign solvency crisis in which the authorities didn’t assure us for years that we were facing not a solvency crisis, but merely a short-term problem with liquidity. A sovereign solvency crisis always begins with many years of assurances from policymakers in both the creditor and the debtor nations that the problem can be resolved with time, confidence, and a just few more debt rollovers.


      This is the key point. The American bankers weren’t stupid. They just could not formally acknowledge reality until they had built up sufficient capital through many years of high earnings – thanks in no small part to the help provided by the Fed in the form of distorted yield curves – to recognize the losses without becoming insolvent.

      And this matters to Europe. There is simply no way European banks, especially in Germany, can acknowledge the possibility of sovereign insolvency until they, too, have built up enough capital to absorb the losses. They have, unfortunately, been painfully slow to do so, even with yield-curve help from the ECB, and so I suspect that this is going to remain a “liquidity” problem for many more years. While it does, the debt-burdened countries of peripheral Europe are going to suffer a decade of weak growth, high unemployment, and contentious politics, all the while the debt growing faster than the economy.

      What is truly terrifying about the London Whale incident is that it demonstrates just how easily a bank’s capital can be manipulated, and especially when the regulators are on board with the maneuver. Edward Kane posted on this a couple of days ago on NC. If you have dishonest regulators, a bank’s reported capital is meaningnless:

      Pettis’s analysis is built upon an assumption that doesn’t always prove true, however. The assumption he makes is that when banks are extended regulatory forebearance in regards to determining their capital, that they will automatically use this as an opportunity to rebuild their balance sheets. But, as the S&L crisis revealed, this isn’t always the case. In the S&L crisis, the banks used the lax capital rules to keep the fraud going for an additional 9 years, from 1980 to 1989, with the losses mounting all the while and with the banks’ balance sheets growing progressively worse. So when the regulators finally did step in to resolve the crisis in 1989, the final cost to the taxpayers was many fold what it would have been if the regulators had not extended regulatory forebearance and had instead moved immediately in 1980 to close the involvent banks.

      So what is the truth about what is going on now? Are the TBTF banks wearing the sackcloth of repentance and slowly rebuilding their balance sheets on the back of everyday folks as Pettis and Bair seem to suggest? Or are they using the regulatory forebearance being lavished upon them by the US government to party on like never before, as was the case with the S&Ls between 1980 and 1989?

      1. NY-Paul

        Sometimes an author uses a grammatical trick to signal a “snark alert” for the benefit of some naïve readers out of the very real possibility that they just “didn’t get it.” Maybe, you should consider coming up with a “redundancy alert” when wrapping up a lengthy, serious essay like this one, otherwise, the question, “or are they using the regulatory forebearance being lavished upon them by the US government to party on like never before,….” might be mistaken as an actual question.

    5. Brooklin Bridge

      Sorry, she’s a tool. – Ms G

      You nailed it. A nice reasonable sounding tool one would love to have for a neighbor, but a tool non the less. It never ceases to shake me how sanguine these people sound when discussing issues they are intimately familiar with that have utterly ruined hundreds of thousands if not millions of people’s lives. People including children literally out on the streets, in cars, some dying because of it. Others with hard earned pensions and resources reduced to abject poverty. You’d think they were rounding errors.

      As to Moyers, I’ve never seen him as anything but reasonable and gentle with virtually everyone, and that has been extremely frustrating at times.

      One such incident was after Martha Coakley was defeated in her Senate run. Coakley is one of the best examples of a Vichy Democrat in all it’s chameleon glory with the underlying slime that ever lived and she was defeated for that very reason, but the guests Moyer’s selected to discuss her loss of Kennedy’s senate seat were clearly chosen to obscure the fact and instead push the usual pap about not letting the “perfect be the enemy of the good” (the euphemism used at the time to paper over the fact that a bad health care bill was becoming a disastrous fascistic monstrous health insurance give away).

      At the same time, Moyers is one of only 3 or 4 pundits on main stream television that will discuss real issues with real facts occasionally escaping and not simply tow the establishment propaganda as the usual zombie mouth-piece. And he introduces his audience to people such as Glen Greenwald or Yves Smith which many would never see or hear of otherwise. As such a rarity, one can’t help but be grateful. Que faire? He has guests like Greenwald as well as guests like Sheila Bair. As Banger says below, “This system [our sometimes democracy] is very robust because it allows a wide range of opinion but does not allow any opinion that borders on questioning the system as a whole.”

      1. Ms G

        I identify completely with your sentiments about Bill Moyer, and all I can say about him is “bless his heart” in so many ways for what I consider to be his considerable courage in doing as much as he does — e.g., bringing Yves Smith and Glenn Greenwald onto his show, and having the show (with its segments on GFC) in the first place. And yet, as with the “vote for the lesser evil” phenomenon, one wonders whether presenting the issues with blunted edges (and papering over the underlying monstrosities with a “tea time” chatty tone) isn’t very much part of the problem.

        I would like to see Bill Moyers begin to change the *tone* of his show to convey that these issues are part of a Current Emergency. Not just topics for discussion in the tea room.

      2. Ms G

        @Brooklin Bridge — the Martha Coakley/Vichy Left business around the Trojan Horse health insurance bill was a very good example and reminder. Thanks.

  2. Watt4Bob

    There’s a corollary of “Damning with faint praise”, it’s;

    “Blessing with faint criticism”

    What a significant percentage of the public hears, even when it’s explained by people like Moyers, Bair, and Warren, is “Tut tut tut”.

    1. banger

      Indeed–but we need to understand that these people are part of the system and they are playing a role. When they criticize to intensely they end up like Chris Hedges, on the outside looking in. I’ve seen it over and over again. You cannot remain in the system and criticize its assumptions you will be, largely, disappeared from the cultural landscape.

      This system is very robust because it allows a wide range of opinion but does not allow any opinion that borders on questioning the system as a whole. From a systems theory perspective it works almost perfectly. But let’s be clear here, the system exists for the benefit of as narrow an oligarchy as any other society/empire. Bair and Moyers serve at the pleasure of an emergent hereditary aristocracy just as in any other period of history. The “moment” of democracy, at least in this country, has passed and neo-feudalism has begun.

      1. NY-Paul

        Of course! Understanding those restraints, I’m rather surprised Moyers ventures as far into the toxic wasteland that is our financial system as it is. I think that if he went beyond gently describing the corruption, to something hinting at a “call to arms,” that would be the end of Moyers, and, probably, PBS also.

    2. Ms G

      “blessing with faint criticism”

      wonderful — captures the Vichy-Left and VL media (and their hapless “customers,” er, constituents/readers)

      Thank you!

      1. banger

        I always prefer the term “Stasi left” myself–brings a bit of menace and a willingness to deceive. Though, frankly, the left in America is just deceiving itself–still….

  3. banger

    Like others I’m shocked (not really) that Bair and Moyers are “shocked” at the criminal behavior of Jamie and his crew. What we need to understand is that when you classify private enterprises as TBF you are officially giving them political power to control their own fate–they are no longer answerable to the public. Criminal prosecution is just not possible because those institutions are part of the government now and are immune from any kind of prosecution.

    Bair has faith that the regulators will do something, and I think she’s right–but it will be reform to strengthen the power and robustness of the system as it is, i.e., to save the banks from extremes of criminality and allow them to just be content with being parasites rather than killing the host.

    We don’t need the banks as now structured but it’s too late to change our situation. We’ve collectively acquiesced to our current power-structure which is more set in stone than it’s ever been. To put it another way, the current political climate makes any change in trends we’ve seen since the late seventies impossible. That trend is the movement of wealth from the general population to the elites as we march to a neo-feudal future.

    1. TC

      “…when you classify private enterprises as TBF you are officially giving them political power to control their own fate–they are no longer answerable to the public.”

      Which is why I generally call such enterprises “Titans of Tyranny”–the very thing the United States supposedly was created to oppose. There simply is no credible defense of this arrangement worthy an American. Those who otherwise rationalize it (as well as financial structures making it so) are better thought seditious I dare say. Truth be told, I’ll be the least bit surprised if tar and feathering makes a comeback…

      1. NY-Paul

        Well, this is THE discussion that must be adjudicated if there is to be any hope of restoring America to anything resembling a capitalistic democracy. Personally, I doubt it will happen. I think, like others have noted here, we’ve crossed the point of no return, probably with the election of R. Reagan thirty years ago.

        If throwing tens of millions of average people out of their homes, and jobs, and now, laughing publicly at us, well, that about says it all. If the sociopathic hubris of not only committing such sadism on the American people, but insisting we “like” them for doing it didn’t spark any civil unrest…….stick a fork in us, we’re done.

  4. patricia

    I think Moyers and Bair are ok. Bair is an honest creature of the system. She will talk about how things are going awry within but not look outside. But if you think back to when you first realized something was stinking in Oz, it took a while to come to the conclusion that the system itself was faulty. Most people are still at the stage of “something’s wrong!” Bair’s message spread widely would get us halfway down that yellow brick road.

    The next segment of the Moyers show was with Richard Wolff, “Capitalism’s Destructive Power” and there’s a live chat with Wolff on the site. Moyers has one foot in the system and one foot out.

    “Tut tut tut” was Levin at the end of the hearings when he said, in effect, “My dear rambunctious boys, you really must stop torturing squirrels in the woods. Now promise me you’ll quit.”

    And what’s wrong with flogging books? If the book is awful, it’s up to the media to not give it a platform. If it’s useful, I want to know about it.

  5. RetiredinSoBe

    For me, the interesting aspect of the JPM Whale episode is whether the CEO, Jamie Dimon, and then CFO, Douglas  Braunstein (and current vice chairman) are in violation of numerous securities laws by misleading investors in April 2012.  

    There are many great sentences in the Senate report, but a very good one is the last sentence in it (pg 301):

    “The bank’s initial claims that its risk managers and regulators were fully informed and engaged, and that the SCP was invested in long-term, risk-reducing hedges allowed by the Volcker Rule, were fictions irreconcilable with the bank’s obligation to provide material information to its investors in an accurate manner.”

    Isn’t “fictions irreconcilable” delightful phrasing?

    A US senate staff report, along with exhibits, can be downloaded:  

    300-page Senate committee report:
    660+pages of exhibits:

    From pg 11 of senate staff report:
    “Given the information that bank executives possessed in advance of the bank’s public communications on April 10, April 13, and May 10, the written and verbal representations made by the bank were incomplete, contained numerous inaccuracies, and misinformed investors, regulators, and the public about the CIO’s Synthetic Credit Portfolio.”

    From page 20 of the Exhibit PDF:
              Inaccurate Public Statements on April 13, 2012
    Risk Managers: “All of those positions are put on pursuant to the risk management at the firm-wide level.”
    Regulators: “[A]ll those positions are fully transparent to the regulators.”
    Long-Term Decisions: “All of those decisions are made on a very long-term basis.”
    Hedging: “[W]e also need to manage the stress loss associated with that portfolio . .. so we have put on positions to manage for a significant stress event in Credit. We have had that position on for many years …. ”
    Volcker Rule: “[W]e believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker.” 

  6. Ms G

    Repeating — Sheila Bair said, about a minute into the interview, that the “system is getting incrementally safer” — to say such a thing while simultaneously being aware (and shocked by) the Whale — which has occurred during this period of alleged incrementally increasing safety — is what is shocking. Again she has a Schrodinger’s Cat for a brain.

    1. patricia

      Ms G, if you’re talking to me…I essentially agree with your understanding of the Whale trades, but Bair thinks things can be changed from within. She is “shocked” because she’d hoped that the system would be working better by now, and also because it was simply shockingly rotten behavior, top to bottom. Her answer is better regulation, right now and yesterday, and she says what’s in the pipeline is not nearly enough any which way. She agrees that banks must not use FDIC customer deposits for spec.

      She later clarified “incrementally safer” to mean that capital had inched up in the banks but was still not nearly enough for stability.

      I’ll take an honest actor inside the system. If there were more, we’d be able to broach the subject of systemic change without being jeered.

      1. Shutter

        “…She is “shocked” because she’d hoped that the system would be working better by now, and also because it was simply shockingly rotten behavior, top to bottom.”

        Bair is either stupid or a liar.

        I suspect she’s both.

        At this point, anybody who was even remotely close to the gutting of financial America should be tarred and feathered, their lives sown with salt.

        Certainly nobody with a brain should even consider anything coming out of their mouths as anything but a self-serving lie.

        We seriously need to get beyond asking the criminals their opinions on anything.

        1. Ms G

          “hope things would be better …”

          Yes. Meanwhile there she was allowing FDIC settlements (for pittances) to be handled on the QT with “neither admit nor deny” clauses. Bair either does not grasp the inconsistency or is a self-serving promoter of her book.

        2. patricia

          “Certainly nobody with a brain should even consider anything coming out of their mouths as anything but a self-serving lie.”

          Gee thanks, Shutter. But I’m glad you have a brain that can let me know there’s only one proper conclusion to be drawn regarding this woman.

          It is obviously brainless to consider Bair as something other than stupid and a liar and a criminal, perhaps merely narrow and of limited influence on the system during her tenure.

          It is brainless because every intelligent person knows that you are either with us or agin us.

      2. Ms G

        Patricia … I wasn’t speaking to you directly. Just responding to the apologetic arguments. Which I agree have their place, but which I also (and that is my view only) believe are naive. Warren was supposedly a “good gal” on the inside … and now she’s shown her true colors. Bair is selling a book and presided over a policy change at FDIC that *concealed* ridiculously puny settlements with banks — so she is very much a part of why things today are not as “better” as they might be.

        To split her in half is to ignore the whole person and I don’t believe for a moment that beyond little fireside chats with the Bill Moyers-es of this world Bair has any strong desire or plan to make any significant changes. Remember, Bair’s timeline for “change” is different from yours or mine — she’s all set with her home and her income and her pension and health benefits, so her timeline is comfortably infinity. That’s not the case for most of the 99%.

        1. patricia

          Ok, Ms G. I guess we will differ on Bair’s and Moyers’ value relative to the situation as-it-is.

        2. Steve in Dallas

          MsG makes a very important observation…

          “Bair is selling a book and presided over a policy change at FDIC that *concealed* ridiculously puny settlements with banks — so she is very much a part of why things today are not as “better” as they might be… To split her in half is to ignore the whole person”

          This begs the question…

          Did Sheila Bair discuss the “puny settlements” issue in her book? Did she say in her book that she was forced by the Geithner cabal to hide the many and “puny” settlements from the public?

          If Bair did try to bring this issue to the publics attention in her book then she’s covered. But, this is such a HUGE issue that if she did not discuss this issue in her book then that would solidly indicate that she’s covering up.

          I suspect it’s the later because this issue only recently was big news.

      1. Ms G

        Thanks for the very fun links – who knew? Loved this one:

        “Douglas Adams describes an attempt to enact the experiment in Dirk Gently’s Holistic Detective Agency. By using clairvoyance to see inside the box, it was found that the cat was neither alive nor dead, but missing, and Dirk’s services were employed in order to recover it, Dirk deducing that the cat had simply grown tired of being subjected to the experiment and wandered off. (Although he admits later on that he was actually using the experiment as an attempt to determine the mental state of his friend Richard Macduff, Richard’s logical arguments about why the experiment was pointless confirming that he was mentally stable).

  7. Ms G

    There’s also no focus at all on an aspect of the Whale trades that seem to have escaped interest in main and nonstream media, with one exception — David Dayen’s post at Salon on JPM as a “Farmer.” In that article Dayen, who appears to have plowed through the Levin report in great depth (thank you David) we learn that — aside from all the other brazen frauds constituting the CIO office — JPM was using *FDIC-INSURED CUSTOMER DEPOSITS* on those speculative prop trades. Is anybody listening?

    Here’s the relevant quote from Dayen’s article (followed by the link to the original post):

    One of the bigger problems with the London Whale trade is that they gambled with “excess deposits,” funds deposited by ordinary Americans that had not been loaned out. JPMorgan was essentially gambling with FDIC-insured money, secure in the knowledge that major losses would be borne by the public while profits would stay in the bank.

    Full link to the article, which also sharply exposes how JPM is using the Agriculture Committee to “quietly” (de facto, secretly) upend derivatives regulations that would prevent it from speculating in commodities with tax-payer insured customer deposits.

    1. Ms G

      Who knew that the money we had in our checking or savings accounts was “excess deposits” that the banks can use to place private bets with. Another example of Cyprus in the Homeland.

      1. down2long

        “Everybody Knows” Leonard Cohen. Listened to it this morning, disturbing prescient 40 uears ago, now just makes me want to jump off the bridge from despair. It just get worse.

        1. patricia

          I went to Cohen concert last fall. Best concert I’ve ever been to. He skipped across the stage on his brittle old bones, no bridge-jumping for him. He spent a good long time in a Buddhist monastery; it gave him some measure of peace without lobotomizing his acute insight. Amazing!

    2. Yves Smith Post author

      I have to tell you, we wrote about that LONG LONG before the Levin report was up. That aspect was already public information. I have to tell you, anyone who does not know that the CIO was using “excess deposits” has not been paying attention.

      The big news items in the Levin report are:

      1. The degree to which JPM was mismarking positions and the degree of upper management involvement
      2. The implementation of the new VaR model was to hide how much they were violation risk adjusted capital requirements
      3. The degree to which Dimon was lying to the public (flagrantly)
      4. How highhanded JPM was with regulators (particularly, in refusing to give any info for 2 weeks, lame excuse that there had been a leak and it might have come from the OCC)
      5. How “uncurious” the OCC was

      1. Ms G

        Well, in all of most of the recent coverage I haven’t seen the public reminded of this rather central fact. When a story moves over time, its pieces need to be kept together as it gains more aspects or chapters. Otherwise the full meaning and implications of a story like the Whale trades gets lost. And JPM’s use of “excess deposits” to gamble, is in my humble view as a mere citizen with no professional experience in finance or management consulting, is an extraordinarily important piece of this story for obvious reasons.

        Let’s not forget that changing the VAR model is *exactly* what MF Global did with its whale-sized trades on european debt, before it finally had to fess up and go bankrupt. That expedient switch in VAR modeling was one of the methods by which MF Global stole customer accounts.

        And now Cyprus, and the confiscation of deposits.

        There’s a very clear line running through these stories — how people’s money is being stolen in increasingly brazen ways by government and finance — that needs to be kept left right front and center.

        And of course it was covered here at NC — that’s why I come here!

        But in the recent coverage immediately following the hearings, I have read quite extensively and Dayen’s article was the *only* place where I found this important piece of Levin’s report re-reported and highlighted.

        That’s all. Nobody is or was saying that the use of depositor’s money to gamble by JPM was not covered here at NC.

  8. Shutter

    I wonder what excuse she’ll have when the government does a Cyprus on US depositors?

    What? It won’t happen here?


    1. Ms G

      That might explain why she has nothing much to say about the aspect of the Whale Trades that involved using *customer deposits* (sorry, “excess deposits”), to make speculative bets. Or that she has never had anything to say about MF Global, Corzining and the Vaporization of people’s money by banks and other financial outfits.

  9. simon p gruber

    How can anyone believe ms bair deserves citizenship in this country anymore? Did she suddenly forget that HER JOB was to STOP THIS?

    and why is yves enabling that forgetting?

  10. DolleyMadison

    GEEZ – now whose “subconscious political underpinnings” are showing? She clearly stated that she does NOT believe in TBTF and that in any event being TBTF does NOT preclude prosecution of individuals.

    If want folks to come over to your side…don’t pillory them when they do.

    1. simon p gruber

      indeed, she clearly supported and forwarded the interests of those she was SUPPOSED TO REGULATE.

      that she lied to her is why she has a budget and agents. SHE PERSONALLY FAILED.

      I dont want her or her friends. Would you trust someone with that amount of power and duty after the way she had used it?

      If so, please send me $20. Every day.

      1. Yves Smith Post author

        Do you not understand that the FDIC can’t prosecute? It can only refer cases to the DOJ for prosecution. And that the FDIC is not a “senior regulator?” Read her book, she discusses how she only had a partial view of what was going on at the big banks, as in she could see only half of Citi’s operations, and the other regulators withheld info from her.

        1. Ms G

          But Bair did not have only a partial view of initiating a policy of “quiet” settlements. That was smack in the center of her jurisdiction. I was extremely disappointed that Bill Moyers did not ask her about this and that she did not feel it was important to bring it up on her own.

          1. NY-Paul

            Oh, c’mon. Why are we pillorying this woman in such an unrealistic manner? Maybe her detractors don’t have eyes, but, I’m pretty sure she does. Maybe she should go immolate herself in front of the Wall Street Bull. Look around, for god’s sake. Obama, Geithner, Holder, the OCC, and every politician in Congress fellating the CEOs of these banks, and she’s supposed to do…..what?

            I’m happy she, at least, leans ever so slightly to the right direction. Do you really believe she could take any action detrimental to Dimon/Blanfein et al after all those characters I mentioned are crawling on their knees just to get a pat on their heads from the Bankers? Talk about demanding 21s’t century windmill assaults.

  11. simon p gruber

    moreover, as head of the FDIC, she had the authority to test and resolve these TBTF banks. How can anyone suggest that her comments now, when she has failed to exercise the IMMENSE power of the FDIC, are anything other than than an INTENTIONAL deception?

    We already PAID HER to be on OUR TEAM. And she SCREWED US in a way that makes her as, if not morshe is scume culpable than any other single individual, as she alone could have handed each TBTF its death sentence, had she deigned to do THE JOB WE PAID HER TO DO.

    she is purile scum and that anyone would be stupid enough to call her a “Good Guy” just enhances my optimism.

    1. LucyLulu

      Resolve a bank like Citi when there is no plan or precedent to do so? Citi has branches in 120+ countries, all of whose laws would have to be integrated with US law, and I don’t remember how many employees. Even Simon Johnson has said there’s no way it could be done (though Sheila in her idealism did push for it) without creating an ungodly mess that would take years and years to sort out, and he was referring to today with the benefit of Dodd-Frank.

      1. simon p gruber

        okey dokey… so the excuse for her not doing her job was she was surrounded by criminals? wow. that conclusion is even worse: it means law is irrelevant, law enforcement is a militarized gang, and your pathetic response is:


        the only thing she had to do was pull the FDIC guarantee when the banks couldnt prove up. it was her job.

        Dont really care how it effects people who were too stupid to see it, and making excuses for people who had an AFFIRMATIVE DUTY to INVESTIGATE (SEC v Fnme, et al) sounds like you arent stupid: YOU ARE COMPLICIT, the same way BAIR IS COMPLICIT.

        How far up your ass is your head?

  12. simon p gruber

    further, as head of the FDIC, she had to regularly attest under oath that our banking system was sound and depositors had a reasonable guarantee of recieving funds lent to said banks.

    At best, she lied then, or is lying now.

    strains credulity is no longer enough.

  13. simon p gruber

    If Bair was your babysitter, and you came home and asked where the kids were, by analogy, her argument would be:

    “Well, I was supposed to look after them, but they went in their room, and how was I to know that they had run out the window and set the neighbors house on fire?”

    would you accept that? I do NOT

  14. simon p gruber

    … and it turns out, upon closer inspection (bair=babysitter) that No, the children did not run out the window….

    They used sledghammers and actually knocked the walls out of their rooms to make egress. Indeed, they damage is sooo vast, the deaf neighbor three houses down heard it, and had been banging on the door for hours whil babysittin bair ignored it and ate popcornm, thinking:

    “Regardless of what the children do, I am not responsible. If they commit a crime, the police will come. If they start a fire, the fire department is responsible.”

    Would you rehire that teenaged babysitter?

    bair’s best excuse was the children tied her up and put her in the closet first, and again, would you ever trust that babysitter again?

    1. Steve in Dallas

      The whole system was insolvent and flush with criminality back then… and much more so now. They ALL knew back then, including Baer, that the neoliberal experiment had either failed hopelessly or was succeeding marvelously.

      Sheila Baer must have understood this… and she didn’t do anything to stop the disaster capitalism process from moving forward.

      My verdict for now… guilty.

  15. Chauncey Gardiner

    Thank you for posting this interview of Sheila Bair. Deep and broad monetary and financial system reforms are necessary IMO. If these large banking institutions desire to speculate in derivatives, they can do so with their shareholders’ and bondholders’ money, not depositors’ funds.

    I would particularly favor a public utility banking option through the Post Office.

    It will be informative to learn what structural changes Ms. Bair recommends.

  16. LucyLulu

    I don’t know if ya’ll are unfamiliar with Sheila Bair’s tenure at the FDIC or have superhuman expectations. She was one woman, do you think she could have saved the system singlehandedly. She was fighting Geithner and Paulson from the beginning and had a reputation for not being a “teamplayer”.

    She sounded the warning bell about subprime mortages a year or two before the SHTF but nobody listened. She also resisted the lower capital requirements of Basel II that Paulson, the Fed, and OCC were pushing and were being instituted in Europe, said the banks needed more not less. She resisted so long that the GFC hit before they could be implemented, even though the Fed and OCC didn’t technically require her permission to give the go ahead. She had become another Brooksley Born. She also argued in the emergency bailout meetings that the bondholders and stockholders should take the hits before taxpayers. I don’t know which banks fall into the “neither admit nor deny” category, that is typically the SEC’s signature settlement agreement, not the FDIC. However, WaMu and IndyMac litigation were both settled out of court AFTER her replacement, with IndyMac resulting in admissions of guilt and a $1M fine out of the CEO’s personal pocket. Perhaps she sold some of the failed banks too cheap, I’m not qualified to comment on that. However, she was trying to spare the taxpayers since the FDIC has unlimited liability, SCOTUS ruled if the deposit insurance fund is depleted, then the fund is guaranteed by the deep pockets of the US Treasury. She did advocate for the failure of non-banks. She also strongly advocated for mortgage writedowns. This was all reported in papers like the NYTimes and business media.

    Perhaps she wasn’t perfect, but geesh, should she be damned for not saving the world singlehandedly? All things considered, she did a hell of a job, given the cards she was dealt. Exactly who could have done more and how (and recall she had no advantage of being able to play Monday am quarterback)? Had she been anymore belligerent, she would have been completely ineffective. She was fighting on every front, and had limited authority. In any job, there’s only so much trouble you can stir up before you get tuned out and labelled as a crazy woman, if not kicked out on your ass. (And then how much could she do?) It’s a damn shame we didn’t have more Sheila Bairs around.

    1. Murky

      Thank you LucyLulu for restoring some balance to this discussion. The many venomous comments against Bair were trending toward a bad generalization of blame. Not all US banking regulators were busy aggressively assisting the banks in their looting of the US economy. By my reading, the FDIC operated more in the public interest, whereas the OCC and the Treasury were (and still are) thoroughly captured by banking interests. Anybody who has taken the time to read Bair’s book, Bull by the Horns, will understand directly that Bair was not a bankster-friendly regulator. She fought pitched battles with other corrupt regulators and did pretty damn well considering the interests that were aligned against her. The rush to judge all all banking regulators as evil spawn of the bankster class is broadly indiscriminate and just wrong.

      It troubles me when intelligent people eagerly point blame and make bad generalizations. And refreshing when others take a stand for a more balanced discussion.

      1. simon p gruber

        Anyone who took the time to walk into a bank and ask “is my money insured?” was smart enough to know the FDIC shit the bed here.

        Who was in charge of the FDIC? Shiela Bair. The words coming out of her mouth and pen mean nothing, she failed when she had power, and now she wants symapthy because it “Was just too much for me…”

        Again, it is her guarantee the banks can pay back depositors. She either affirmatively LIED about that (by allowing banks to retain FRAUDULENT guarantees), or she was complicit, or she was incompetent.

        None of that means im going to pay into her bs retirement fund. none of that is any reason to say, Well the circus was too big, so I just said a lot of pretty things.

        By all means, tell me how intimidating a federal regulator should be met with ANY OTHER RESPONSE than INDICTMENTS.

        Or are all banks insolvent and all the cops corruptly protecting them?

    2. simon p gruber

      She wasnt perfect….

      All she had to do was PULL THE GUARANTEE. The banks had a positive duty to comply (yknow, to prevent the GD2, cuz, yknow, THAT WAS HER JOB), and if they failed to positively and fully comply, and the FDIC still extended the guarantee, then Bair and the FDIC commited perjury.

      Why are you standing between the pitchforks and bankers? because you are a banker stooge.

      1. LucyLulu

        Pulling a bank’s guarantee requires a vote by the entire Board of the FDIC. The Chairman is only allotted one vote. Then, their decision is subject to judicial review unless the institution voluntarily consents. Not counting any judicial review, the process, with notices of intent to terminate and 6 mon6hs – two years of tail coverage, takes at least a year before the guarantee is terminated.

        Nobody died and made Sheila queen. Our government, for better or worse, is one of checks and balances.

    3. Chauncey Gardiner

      Thank you for your comments, LucyLulu and Murky. I agree. The justifiable anger about what has occurred was misdirected toward Bair IMO. Furthermore, when someone posts seven times in a very short time period, and their posts are vitriolic, that also causes me to question whether they have an agenda and whether that agenda is less than constructive. Just sayin’.

      Still, although I share your view, she is identified by many with the status quo. As you know, many of us here feel material monetary and financial system reforms are necessary. Her work on the Systemic Risk Council will be informative to me as to whether she is an agent of modest, incremental change or someone who is different.

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