Seven Explosive Details from Bair's New Book

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WASHINGTON — Sheila Bair comes out swinging in a new book released Tuesday, blasting Treasury Secretary Tim Geithner as the "bailouter in chief," while detailing fierce regulatory battles before, during and after the financial crisis.

The former Federal Deposit Insurance Corp. chairman's nearly 400-page "Bull By the Horns" is chock-filled with meaty details about the behind-the-scenes debates over the 2008 bailouts, the Dodd-Frank Act and beyond.

Although American Banker is still reviewing the full text, following are several new revelations from the book:

1. Hamp was doomed to fail, and Geithner didn't care
The book recounts Bair's ongoing efforts through two administrations to help the government create a plan to assist troubled homeowners. But she is particularly frustrated by Geithner's failure to adopt recommendations from the FDIC over how to construct its Home Affordable Mortgage Program, which she says was too complicated and provided too few incentives for servicers to participate. Ultimately, Bair concludes Geithner and Larry Summers, one of the White House's top economic advisors, never really cared about the program or helping homeowners.

"HAMP was a program designed to look good in a press release, not to fix the housing market," Bair writes. "Larry and Tim didn't seem to care about the political beating the president took on the hundreds of billions of dollars thrown at the big-bank bailouts and AIG bonuses, but when it came to homeowners, it was a very different story. I don't think helping homeowners was ever a priority for them."

2. Geithner was too invested in bailouts, before and after the crisis
Bair's criticism of Geithner, which is an ongoing theme of the book, is grounded in what she sees as the Treasury chief's efforts to continually throw money at the largest financial institutions in an attempt to shore them up. Upon hearing of President Obama's nomination of Geithner, Bair likened it to a "punch in the gut."

"I did not understand how someone who had campaigned on a 'change' agenda could appoint someone who had been so involved in contributing to the financial mess that had gotten Obama elected," she writes. "Tim Geithner had been the bailouter in chief during the 2008 crisis. If it hadn't been for my resistance and the grown-up supervision of Hank Paulson and Ben Bernanke, we would have spent even more money bailing out the financial bigwigs and guaranteeing all their debt. As president of the NY Fed, Tim had been responsible for regulating many of the very institutions whose activities had gotten us all into trouble."

3. Citigroup "should have been led to the pillory"
Bair provides an insider's account of the three bailouts of Citigroup, arguing forcefully that Vikram Pandit was ill-equipped to deal with the company's problems and that Citi should have been used as an example to others. She says the FDIC came close to downgrading Citi to a 4 on the Camels scale—a move that Bair acknowledges would have been "nuclear," perhaps even causing Citi to collapse. She attempted to use the FDIC's leverage over the rating to make significant changes at the company, including forcing it to sell off its assets in a bad-bank structure.

But Bair describes Geithner as defending Citi at every turn, even working with Pandit to ensure he remains CEO. "Tim seemed to view his job as protecting Citigroup from me, when he should have been worried about protecting the taxpayers from Citi," she says.

Although Fed Chairman Ben Bernanke helped secure some reform, Bair argues that regulators missed an opportunity to send a strong message to the market and other large banks.

"We could have worked with the White House to impose some accountability on the institution," Bair writes. "It would have completely changed the political dynamic and the growing anger and resentment against the government's seemingly endless willingness to throw money at big institutions. The public justifiably wanted retribution. Citi should have been led to the pillory."

4. The OCC should be abolished
Time and again, Bair portrays the Office of the Comptroller of the Currency as far too close to the banks it regulates. She said she was alarmed by efforts from then Senate Banking Committee Chairman Chris Dodd in 2009 to consolidate regulators into a single banking agency. While Dodd intended to eliminate the OCC, Bair says it instead would have empowered it. It also would have addressed the wrong problem, she says.

"Our three biggest problem institutions among insured banks—Citigroup, Wachovia, and Wamu—had not shopped for charters; they had been with the same regulator for decades," she writes. "The problem was that their regulators did not have enough independence from them. Consolidating all of the power with the OCC, the weakest regulator along with the OTS, would make things worse, not better."

The solution, she says, is to do away with the OCC altogether, putting all bank supervision with the FDIC—and leaving holding company supervision with the Fed.

"Let's face it, the OCC has failed miserably in its mandate of ensuring the safety and soundness of the national banks it regulates."

5. Big banks should be "subsidiarized"
Rather than push for a bill to break up the big banks, which Bair says would not have good odds of passing Congress, she said the Fed and FDIC should use their powers under Dodd-Frank to force structural changes at overly complex companies. Using their "living wills" as a guide, regulators should compel institutions to keep their different operations in separately-run units, with bank deposits reserved for funding traditional banking activities.

"The Fed and FDIC should use these powers to require the largest institutions to restructure themselves into a manageable number of distinct operating subsidiaries, each with their own boards and specialized executive management teams," she writes. "Their commercial banking operations should be housed in their FDIC-insured banks and their securities, derivatives, and insurance functions should be housed in separate, stand-alone affiliates for each business line."

6. Geithner fueled GOP dislike of Dodd-Frank by pushing for continued bailout powers
Bair spent much of her time during the Dodd-Frank debate fighting for new powers for the FDIC to seize and dismantle troubled megabanks in the event of a crisis. Though she won early support from President Obama in a meeting at the Oval Office, Treasury's white paper would have preserved the government's ability to do future bailouts. While the White House "truly wanted to end bailouts," Geithner's eventual proposal was a "bailout advocates' dream."

When Bair and other regulators objected to the plan on Capitol Hill, Geithner summoned the principals for an "expletive-laced tongue-lashing."

Bair eventually succeeded in convincing lawmakers to explicitly ban bailouts in Dodd-Frank, but the damage was done. GOP lawmakers continue to use Geithner's original proposal to falsely claim that Dodd-Frank enshrines bailouts, she says.

"Tim had made a terrible mistake with the white paper. Given his perceived close association with [former Treasury Secretary] Bob Rubin and the too-big-to-fail institutions, the GOP smelled an issue, and it wasn't going to give it up," Bair writes.

7. Bair came close to quitting
In 2009, with the crisis easing somewhat, Bair "seriously considered stepping down, particularly as it became clear that… the new administration was going to pursue and expand the same bailout policies."

She said she ultimately decided to stay for two reasons: "First, the FDIC itself had a big job ahead of it with bank failures, which were not expected to peak until 2010. We had done so much to improve morale and our operational capabilities. Given the delicate and challenging task of closing so many banks, I did not feel I could abandon ship. It would have been unfair to the FDIC staff, all of whom were working around the clock. Second, by sticking with it, I thought I could make a difference."

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