Banking Law

Betsy On Bair

Fortune senior editor Betsy Morris has a girl crush on Sheila Bair, and boy, has Betsy got it bad!

Sheila Bair may now be a lightning rod, but at least she's finally getting some respect.

For months, her agenda was a non-starter. Her proposals to try to turn distressed mortgages into performing loans through a loan modification program were getting absolutely no traction with either Federal Reserve chairman Ben Bernanke or Treasury Secretary Hank Paulson.

When the three of them testified before Congress last month, Bair, the chairman of the Federal Deposit Insurance Corp., got practically zero air time (one banker complained that every time it was her turn to talk, the TV cameras cut to a commercial).

Bloggers dumped all over her, saying she was irrational, self-serving, arrogant and gave the private sector "a bad case of shingles." Just last week, Bloomberg News reported that Tim Geithner, Obama's pick to head Treasury, was trying to get rid of her.

Now though, she's Page One news and her ideas have to be reckoned with.

Before we proceed, let's pause for a moment to acknowledge that Bank Lawyer's Blog originated the phrase "a bad case of shingles" in reference to the effect of Ms. Bair's proposals in this post from November 18th. Now, we're pleased to be in the same league with Tim Geithner when it comes to "trying to get rid of" Ms. Bair (preferably, without bloodshed), but we think the least Ms. Morris could have done was to attribute the source of her quote, even if, in doing so, she used the opportunity to look down upon the blogosphere from her perch high atop Mount Mainstream Media. But, enough about us. Back to the tale of two women who, frankly, should "get a room."

Among the many accomplishments of Ms. Bair, and signs of her impeding beatification, Betsy includes the petition we discussed in our recent post.

Bair's staff, meanwhile, signed a petition on petitionsite.com singing her praises and asking Obama "that you please retain her as our leader." TV stock picker Jim Cramer joined in the chorus, saying: "Don't kick out Sheila Bair! She knows the numbers." If she's not a team player, blogged Cramer: "Thank Heavens!"

Leave aside the fact that when Jim Cramer sings your praises, you're destined to be struck down by lightning hurled by an angry God who abhors the false prophet. It's the petition that requires a closer inspection. When we used that petition as the subject of our earlier post, we sparked some tart rebuttal e-mails from former FDIC employees. One, a former FDIC lawyer, joked that it was not beyond the realm of possibility that all signatures on the petition were actually pseudonyms of Ms. Bair's, and that she, likewise, might have been sending me e-mails from the FDIC praising herself and using fictitious names. As I said, this former employee was joking.

Another former employee, not a lawyer, was more scathing, and not joking, when this person asserted that "there must be some real kool-aid drinking going on in some small corners of the FDIC for such a petition."

My contacts over there say not much has really changed. There was real hope that Bair would make some serious changes, but there have only been minor changes with a lot of talk. Supposedly Bair ended the merit examination program, but in principle it remains. The examination budget process is still a zero-sum exercise. While it may be easier to spend more hours in Bank A., those hours must be cut in Bank B or Bank C. On a recent internal call hosted by Bair, she quickly shut down examiners when they complained about an inability to spend sufficient time examining the banks.

Bair has kept in place all of the senior executives that created that bad morale. Not a single one has been let go or reassigned. Many have received "war time" promotions during the crisis. She should be called out on this and by the FDIC's massive failure in its prevention duties. Specifically, the FDIC's division of insurance & research was formed in 1995, after the last crisis, to proactively identify emerging systemic risks facing the insurance fund. The risk branch...failed miserably and actively shut down voices that started issuing warnings as early as 2003... Also, where was the FDIC's Supervision Division. They have failed in front-line supervision of banks. Look among the 22 failures this year that were nonmembers [of the Federal Reserve System] (direct supervision by FDIC) and how many failed without being subject to a formal cease & desist order. Other signs of the laxity in supervision is the high cost of the failures. Almost all of the failures are costing 30-40% of assets, which is about 3 times the historical loss rate. Someone needs to call out Bair for the utter failures in FDIC's prevention business lines. One must give her credit by diverting attention away from these problems by touting the "mod in a box." By the way, that program has major analytical shortcomings for any portfolio lender.

Not everyone "in the know" seems as ready for a roll in the hay with Sheila as is Betsy, it appears. None of my correspondent's criticisms are addressed in Betsy's puff piece on Bair. Instead, it's filled with air kisses concerning Sheila "speaking out loudly and courageously;" "standing firm;" saving "consumer spending," which is "the major growth engine of the economy" (presumably, so that consumers will resume using their home's equity as a piggybank to further mortgage the future of their children and grandchildren and to make the future meltdown even more cataclysmic than is the current one);  and offending the old boys network in D.C. (which is presumptively a good thing when your attitude is that "all boys are bad."). Therefore, we decided to look a little more closely at that "petition" that Betsy cites as proof that "mother bear" Bair (Betsy's description, not ours) is loved by "her staff."

To date, just 270 signatures have been obtained on the petition. The FDIC had in excess of 4,000 employees as of 2006, with more today, I presume, given the recent rush to beef up the liquidation staff in Dallas and the recall from retirement of former employees to serve that purpose. The petition was placed online on November 5, 2008, is open to signature by any human being with access to the world wide web, and yet has been signed by a number that represents, at best, less than 7% of the FDIC's workforce. That's not exactly overwhelming support for Bair from within the FDIC, much less from the rest of the world, especially in light of the fact that the stated goal for signatures is a measly 500. On the other hand, it's nice to note that while a severe case of "brown nose" may have infected a tiny minority of FDIC employees, the vast majority appear to be "clean," and the rest of the world appears to be blissfully indifferent.

Nevertheless, we'll assume that these facts won't cool Betsy's ardor for all things Bair. From both the tone and content of her fine "objective" piece of MSM reporting, it's obvious that no facts will prevent Ms. Morris from continuing to swoon over the object of her affection, whether or not her love remains forever unrequited.

Full post as published by Bank Lawyers Blog on December 15, 2008 (boomark / email).