The article in the Sunday NYT about tension between the FDIC and the OCC was a pretty sad version of reality, IMHO. What’s with Labaton and Andrews?
The piece, “Regulators Feud as Banking System Overhauled,” purports to describe the rift between the OCC and Treasury, who side with the big banks, and the FDIC led by Sheila Bair, who attempt to follow the law and enforce some degree of discipline over the banking industry.
Unfortunately, the article gives far too much credence to Controller John Dugan and Treasury Secretary Tim Geithner, without adequately disclosing to readers of the Times just who works for whom in the political equation. Let’s go through the article and translate some of the TimesSpeak into vernacular.
The first graph of the article juxtaposes Chairman Bair imposing new fees on big banks while Dugan mouthes the line from the large Sell Side dealers that the smaller banks are really to blame for the crisis. The Times biz editors fail to mention (or maybe still don’t know) that the PR line about the little banks being “worse” than the biggies was part of the Sell Side chum tossed into the water over a month ago. That line of nonsense was dutifully picked up by the rest of the Big Media, amplifying the small-banks-are-worse propaganda and enabling the Sell Side dealers to put away tens of billions in new bank equity. Ka-ching!
It’s all part of the spin, right Stephen? Come on.
You see, the little banks, while looking really nasty at the end of Q1 2009, are still in far better shape than the zombies. Only with hundreds of billions in subsidies could the Sell Side hawk the new equity needed to help GS, JPM et al escape the TARP long enough to pay year-end bonuses. Meanwhile, the smaller banks have been paying as much as 3x per $1 of assets to support the FDIC deposit insurance fund vs the money center banks. Click here to see the results from our Q1 2009 Stress Index survey: “Q1 2009 Bank Ratings Update and GM, GMAC Bank Join the Zombie Dance Party.”
It all comes down to one question: do you want the blue pill or the pink pill?
Now, most readers of TBP would not know John Dugan if they saw him on the street and rightly so. Dugan is to bank regulation what Frank Raines was to the housing enterprises, a relentless champion for the large Sell Side dealers and a tireless traveler in support of the work of spreading the good news of financial innovation to other markets around the world. Dugan spent so much time on the road during the heyday of the financial bubble on Wall Street that he could not possibly have known what was going on within the national banks that are his primary responsibility. He can plead incompetence.
Dugan is a complete tool of the large zombie banks, IMHO, a career “public servant” who is entirely captive of the industry he pretends to regulate. Thus his forceful protestations about Bair’s tough line with Citigroup and other insolvent money center banks. Along with Secretary Tim Geithner, Dugan takes his marching orders from GS, JPM and the other major banks, thus the continued effort to try and force Bair out at FDIC. Unfortunately, the Times is so busy carrying the water for Master Tim that they neglect to provide you with the adequate coloration to full appreciate who is serving the public interest among the regulators.
Here’s the key lines at the end of the Times article that somebody in Geithner Land fed to Labaton and Andrews:
“But at the Treasury and the Federal Reserve, Ms. Bair is viewed as someone who pushes her and her agency’s interests rather than someone who finds common ground with other policy makers. Besides Mr. Dugan, she has antagonized many other leaders in Washington.
Officials at the Federal Reserve and the comptroller’s office said she exasperated them last fall when she balked at allowing Citigroup to take over Wachovia, a major bank that was about to collapse.
In bruising negotiations that lasted until 4 a.m., Ms. Bair squared off against Mr. Bernanke, Mr. Dugan and the Treasury secretary at the time, Henry M. Paulson Jr. The stand-off left many officials, who thought the broader financial crisis had given them no alternative but to finance the deal, fuming.”
Of course Paulson, Bernanke et al were “fuming” at Sheila Bair. The FDIC Chairman was doing her job while the rest of these spineless weasels, these duplicitous, traitorous villains were selling out the taxpayer to subsidize the bond holders of the large banks — the clients of PIMCO, BlackRock and the rest of the Buy Side. Following Paulson’s lead, Dugan and Geithner are simply representing their clients and future employers on the Sell Side.
Meanwhile, Sheila Bair and her colleagues at the FDIC are the only regulatory agency in Washington that is still trying to obey the law. The Fed and OCC, on the other hand, have bought into the Paulson/Geithner/Bernanke scheme to subsidize the large zombie banks — anddo so without authority from the Congress.
Bair wanted then and appears to still want today to follow the law and pursue a least cost solution to resolving C and other zombie banks. That means management changes, forced sales of toxic assets and most likely a conversion of debt into equity at C, BAC and maybe JPM and WFC.
When the nonsensical economic policy being followed by President Obama — namely “continuity and confidence” — turns to dust later this year, President Obama will be lucky to have Sheila Bair available to pick up the pieces. And when Bair goes to China to meet with our largest foreign creditor as the first female Secretary of the Treasury, the people in the audience will not laugh openly. See Bob Kuttner’s piece from last October: “Sheila Bair for Treasury Secretary.”