The Escape Artists by Scheiber Noam

Author:Scheiber, Noam [Scheiber, Noam]
Language: eng
Format: epub
Publisher: Simon & Schuster, Inc.
Published: 2012-02-28T05:00:00+00:00

There were others who would have a say in the outcome of financial reform—the U.S. Congress for one. Still, if the House and Senate were the only obstacles standing between Geithner and his ideal vision, then the process might have unfolded relatively smoothly, all things considered. In fact, there was an entirely separate cast of characters poised to influence the direction of reform: the regulators at independent agencies like the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC). Their independence insulated them from administration browbeating and made them more formidable than even the crustiest congressional don.

The highest-profile challenge came from Sheila Bair, a moderate Republican and former aide to Senate majority leader Bob Dole, who frequently clashed with Geithner from her perch atop the FDIC. The antagonism between the two dated back to the fall of 2008, when Geithner, then New York Fed president, concluded that Bair was more concerned with protecting her agency than pitching in to solve the financial crisis.

Time and again during that fall, Geithner would suggest tapping the FDIC’s insurance fund, which exists to make depositors whole when the agency seizes a smaller bank, to bail out the teetering megabanks.13 Time and again, Bair would resist, requiring the collective arm-twisting of Bush Treasury secretary Hank Paulson, Fed chairman Ben Bernanke, and Geithner to bring her around. Bair hated giving the megabanks a pass on the harsh treatment the government applied to other banks, which the FDIC dismantled under similar circumstances. Often her opposition would kill an idea altogether. For her part, Bair had the distinct impression that the three bailout impresarios consulted her only at the last possible moment, by which point they’d hashed out their proposals and were missing only the money to fund them. They had a way of making Bair feel like little more than a $45 billion piggy bank.14

Geithner and Bair continued to clash throughout the first year of the Obama administration, especially when the subject was Citigroup. In February, when Citi approached the government about converting its preferred shares (which don’t imply ownership) to common stock—a move that would shore up its rickety balance sheet—Treasury needed a private sector financial adviser to help evaluate the deal. But the FDIC had already retained the most qualified firm and Bair refused to grant a waiver allowing it to perform double duty. Later, Bair made several runs at ousting Citi’s top executives, including CEO Vikram Pandit, on the theory that they didn’t have sufficient commercial banking experience to manage the company because they hailed from the investment banking world. Geithner defended the Citi executives, who, he argued, had taken over only after Citi had made its most disastrous decisions.15

By the time the discussion turned to financial reform, a Bair-Geithner collision was more or less inevitable. One key flash point was “resolution authority,” which would empower the government to liquidate failing megabanks like Citigroup in an orderly way, rather than consign them to a panic-inducing collapse. The FDIC

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