February 1, 2013
Sheila Bair has been hitting the airwaves of late, telling NBC’s David Gregory and other interviewers about what she learned during her five-year term as the head of the Federal Deposit Insurance Corporation.
As a high-profile warrior in the bailout wars, Bair gained notoriety that’s rare for heads of federal agencies. In 2008, Time included her in its 100 Most Influential People list and called her “the little guy’s protector in chief.” At the same time, Forbes named her the second most influential woman in the world, behind German Chancellor Angela Merkel. Bair was honored with the John F. Kennedy Profile in Courage award in 2009.
Now, she has told her story of high-stakes intrigue in Bull by the Horns (Free Press, 2012), an inside account of government’s response to the financial crisis. She was a key player, leading an agency whose deposit insurance and bank supervisory programs bolster the public’s confidence in the nation’s financial system.
Bair opposed the sweeping bailout of major financial institutions. She argued that much more should have been done to save struggling homeowners from foreclosure. Her book details internecine struggles with other powerful officials, notably Treasury Secretary Timothy Geithner, whom she roundly criticizes as the bailout king. But students of government may be more taken by Bair’s assessment of the conflicts of interest and institutional weaknesses that impede federal regulatory initiatives.
The FDIC was an agency in distress when she arrived in 2006. Beaten down by critics, downsized repeatedly and hampered by appropriators in pursuing needed rule-makings, the staff was deeply demoralized. Bair took employee surveys, upended an unpopular merit pay scheme, established the Culture Change Council and with her own flinty leadership turned the agency around. In 2011, the FDIC ranked first in the Best Places to Work survey by the Partnership for Public Service. Bair writes of her reliance on staff leaders, “top experts in the field,” who helped her develop sound positions on regulatory issues. “People frequently assume that the heads of government agencies have unfettered power to work their will,” she writes, “but the truth is that you have to have staff acceptance and support to get it done.”
Bair says the FDIC is still far from perfect, and she voices concern about the revolving door that afflicts many regulatory agencies—where employees may see their jobs as tickets to more lucrative careers in the private sector. Bair would like to see “a stronger esprit de corps” among financial regulators, hoping they might be like the Foreign Service officers who often make a lifetime commitment. Regulators should be banned from ever working for institutions they have regulated, she says, and should be better educated and continually trained. Senior staff should be rotated among the financial agencies to “help guard against regulatory capture,” Bair writes.
In her estimation, one agency that’s been ensnared by the institutions it regulates is the Office of the Comptroller of the Currency, a unit of the Treasury Department. It has proved unable to impose the kinds of requirements that would keep the big banks it oversees from getting into trouble. The Federal Reserve, too, she writes, “had its issues with regulatory capture.” Bair would abolish the OCC and merge the Securities and Exchange Commission with the Commodity Futures Trading Commission while also giving them the kind of independent funding the FDIC enjoys. She would abolish Fannie Mae and Freddie Mac, the two government-sponsored enterprises that required huge bailouts.
Bair has some choice words for Congress, “more often than not part of the problem.” Members of Congress, “fed by generous campaign contributions, as well as prospects of employment for themselves and their staffs when they leave office . . . have an interest in promoting the profitability of large financial institutions,” she writes.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was just the first step in the fight to toughen regulation of Wall Street. Bair writes that players both inside and outside government are resisting rule-makings that would allow enforcement of the law. Indeed, Dodd-Frank’s longer term viability is in question, says University of Virginia professor Eric M. Patashnik, author of the award-winning book Reforms at Risk (Princeton University Press, 2008) about how major government reforms can gradually fail.
“Just as the landmark Tax Reform Act of 1986 was the victim of ‘death by a thousand cuts,’ so Wall Street interests have been seeking to carve out countless special exceptions and loopholes to weaken Dodd-Frank’s regulatory framework without having to repeal the law outright,” Patashnik says. “Nearly 500 companies, trade associations and other groups reported lobbying on Dodd-Frank in 2011. The result of this industry lobbying—and of strategic efforts to prevent key regulatory agencies from receiving needed appropriations—
has been to slow the rule-making process to a crawl, and many deadlines have been missed.”
It’s too early to know whether Dodd-Frank will be “emasculated by the very interests it is intended to regulate,” says Patashnik. But Bair, whether in government or not, will not be sitting on the sidelines of the battle to assist struggling homeowners and hold the big banks accountable for their sins.
February 1, 2013