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Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself Kindle Edition
The former FDIC chairwoman, and one of the first people to acknowledge the full risk of subprime loans, offers a unique perspective on the financial crisis.
Appointed by George W. Bush as the chairman of the Federal Deposit Insurance Corporation (FDIC) in 2006, Sheila Bair witnessed the origins of the financial crisis and in 2008 became—along with Hank Paulson, Ben Bernanke, and Timothy Geithner—one of the key public servants trying to repair the damage to the global economy. Bull by the Horns is her remarkable and refreshingly honest account of that contentious time and the struggle for reform that followed and continues to this day.
- LanguageEnglish
- PublisherFree Press
- Publication dateSeptember 25, 2012
- File size5694 KB
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Editorial Reviews
Review
“The FDIC’s influence has grown in the past year because of Ms. Bair’s willingness to challenge her peers, as well as her agency's central role responding to the financial crisis. Ms. Bair warned about the housing crisis before many of her colleagues.” (The Wall Street Journal)
“Bair is everything you'd want in a public servant: thoughtful, practical, independent-minded—a straight shooter with political savvy who can manage the details of policy without losing sight of the big picture. She's no grandstander, but she isn't shy about going public with concerns if she thinks it will help her inside game. She never forgets that her most important constituency isn't the thousands of banks she regulates but the millions of Americans who use them.” (Steven Pearlstein Pulitzer-prize winning Washington Post columnist)
“During the worst economic crisis since the 1930s, Sheila Bair has been the little guy's protector in chief.” (Time Magazine)
“A crisp, telling and often funny narrative of the 2008 meltdown.” (John Wasik Forbes)
"Bull By the Horns is the story of financial calamity seen from the perspective of this public servant, rendered from detailed notes. We learn with whom she met, what was said, what decisions taken, and how things turned out….This is a book for aficionados of infuriating detail.
Yet beneath the froth of facts courses an epic struggle. It pits Sheila Bair and the civil servants of the FDIC on one side and [Timothy Geithner] on the other.” (James Galbraith )
“A useful, corrective addition to the already extensive literature on the crisis.” (Foreign Affairs)
About the Author
Excerpt. © Reprinted by permission. All rights reserved.
Prologue
Monday, October 12, 2008
I took a deep breath and walked into the large conference room at the Treasury Department. I was apprehensive and exhausted, having spent the entire weekend in marathon meetings with Treasury and the Fed. I felt myself start to tremble, and I hugged my thick briefing binder tightly to my chest in an effort to camouflage my nervousness. Nine men stood milling around in the room, peremptorily summoned there by Treasury Secretary Henry Paulson. Collectively, they headed financial institutions representing about $9 trillion in assets, or 70 percent of the U.S. financial system. I would be damned if I would let them see me shaking.
I nodded briefly in their direction and started to make my way to the opposite side of the large polished mahogany table, where I and the rest of the government’s representatives would take our seats, facing off against the nine financial executives once the meeting began. My effort to slide around the group and escape the need for hand shaking and chitchat was foiled as Wells Fargo Chairman Richard Kovacevich quickly moved toward me. He was eager to give me an update on his bank’s acquisition of Wachovia, which, as chairman of the Federal Deposit Insurance Corporation (FDIC), I had helped facilitate. He said it was going well. The bank was ready to go to market with a big capital raise. I told him I was glad. Kovacevich could be rude and abrupt, but he and his bank were very good at managing their business and executing on deals. I had no doubt that their acquisition of Wachovia would be completed smoothly and without disruption in banking services to Wachovia’s customers, including the millions of depositors whom the FDIC insured.
As we talked, out of the corner of my eye I caught Vikram Pandit looking our way. Pandit was the CEO of Citigroup, which had earlier bollixed its own attempt to buy Wachovia. There was bitterness in his eyes. He and his primary regulator, Timothy Geithner, the head of the New York Federal Reserve Bank, were angry with me for refusing to object to the Wells acquisition of Wachovia, which had derailed Pandit’s and Geithner’s plans to let Citi buy it with financial assistance from the FDIC. I had little choice. Wells was a much stronger, better-managed bank and could buy Wachovia without help from us. Wachovia was failing and certainly needed a merger partner to stabilize it, but Citi had its own problems—as I was becoming increasingly aware. The last thing the FDIC needed was two mismanaged banks merging. Paulson and Bernanke did not fault my decision to acquiesce in the Wells acquisition. They understood that I was doing my job—protecting the FDIC and the millions of depositors we insured. But Geithner just couldn’t see things from my point of view. He never could.
Pandit looked nervous, and no wonder. More than any other institution represented in that room, his bank was in trouble. Frankly, I doubted that he was up to the job. He had been brought in to clean up the mess at Citi. He had gotten the job with the support of Robert Rubin, the former secretary of the Treasury who now served as Citi’s titular head. I thought Pandit had been a poor choice. He was a hedge fund manager by occupation and one with a mixed record at that. He had no experience as a commercial banker; yet now he was heading one of the biggest commercial banks in the country.
Still half listening to Kovacevich, I let my gaze drift toward Kenneth Lewis, who stood awkwardly at the end of the big conference table, away from the rest of the group. Lewis, the head of the North Carolina–based Bank of America (BofA)—had never really fit in with this crowd. He was viewed somewhat as a country bumpkin by the CEOs of the big New York banks, and not completely without justification. He was a decent traditional banker, but as a deal maker, his skills were clearly wanting, as demonstrated by his recent, overpriced bids to buy Countrywide Financial, a leading originator of toxic mortgages, and Merrill Lynch, a leading packager of securities based on toxic mortgages originated by Countrywide and its ilk. His bank had been healthy going into the crisis but would now be burdened by those ill-timed, overly generous acquisitions of two of the sickest financial institutions in the country.
Other CEOs were smarter. The smartest was Jamie Dimon, the CEO of JPMorgan Chase, who stood at the center of the table, talking with Lloyd Blankfein, the head of Goldman Sachs, and John Mack, the CEO of Morgan Stanley. Dimon was a towering figure in height as well as leadership ability, a point underscored by his proximity to the diminutive Blankfein. Dimon had forewarned of deteriorating conditions in the subprime market in 2006 and had taken preemptive measures to protect his bank before the crisis hit. As a consequence, while other institutions were reeling, mighty JPMorgan Chase had scooped up weaker institutions at bargain prices. Several months earlier, at the request of the New York Fed, and with its financial assistance, he had purchased Bear Stearns, a failing investment bank. Just a few weeks ago, he had purchased Washington Mutual (WaMu), a failed West Coast mortgage lender, from us in a competitive process that had required no financial assistance from the government. (Three years later, Dimon would stumble badly on derivatives bets gone wrong, generating billions in losses for his bank. But on that day, he was undeniably the king of the roost.)
Blankfein and Mack listened attentively to whatever it was Dimon was saying. They headed the country’s two leading investment firms, both of which were teetering on the edge. Blankfein’s Goldman Sachs was in better shape than Mack’s Morgan Stanley. Both suffered from high levels of leverage, giving them little room to maneuver as losses on their mortgage-related securities mounted. Blankfein, whose puckish charm and quick wit belied a reputation for tough, if not ruthless, business acumen, had recently secured additional capital from the legendary investor Warren Buffett. Buffett’s investment had not only brought Goldman $5 billion of much-needed capital, it had also created market confidence in the firm: if Buffett thought Goldman was a good buy, the place must be okay. Similarly, Mack, the patrician head of Morgan, had secured commitments of new capital from Mitsubishi Bank. The ability to tap into the deep pockets of this Japanese giant would probably by itself be enough to get Morgan through.
Not so Merrill Lynch, which was most certainly insolvent. Even as clear warning signs had emerged, Merrill had kept taking on more leverage while loading up on toxic mortgage investments. Merrill’s new CEO, John Thain, stood outside the perimeter of the Dimon-Blankfein-Mack group, trying to listen in on their conversation. Frankly, I was surprised that he had even been invited. He was younger and less seasoned than the rest of the group. He had been Merrill’s CEO for less than a year. His main accomplishment had been to engineer its overpriced sale to BofA. Once the BofA acquisition was complete, he would no longer be CEO, if he survived at all. (He didn’t. He was subsequently ousted over his payment of excessive bonuses and lavish office renovations.)
At the other end of the table stood Robert Kelly, the CEO of Bank of New York (BoNY) and Ronald Logue, the CEO of State Street Corporation. I had never met Logue. Kelly I knew primarily by reputation. He was known as a conservative banker (the best kind in my book) with Canadian roots—highly competent but perhaps a bit full of himself. The institutions he and Logue headed were not nearly as large as the others—having only a few hundred billion dollars in assets—though as trust banks, they handled trillions of dollars of customers’ money.
Which is why I assumed they were there, not that anyone had bothered to consult me about who should be invited. All of the invitees had been handpicked by Tim Geithner. And, as I had just learned at a prep meeting with Paulson, Ben Bernanke, the chairman of the Federal Reserve, and Geithner, the game plan for the meeting was for Hank to tell all those CEOs that they would have to accept government capital investments in their institutions, at least temporarily. Yes, it had come to that: the government of the United States, the bastion of free enterprise and private markets, was going to forcibly inject $125 billion of taxpayer money into those behemoths to make sure they all stayed afloat. Not only that, but my agency, the FDIC, had been asked to start temporarily guaranteeing their debt to make sure they had enough cash to operate, and the Fed was going to be opening up trillions of dollars’ worth of special lending programs. All that, yet we still didn’t have an effective plan to fix the unaffordable mortgages that were at the root of the crisis.
The room became quiet as Hank entered, with Bernanke and Geithner in tow. We all took our seats, the bank CEOs ordered alphabetically by institution. That put Pandit and Kovacevich at the opposite ends of the table. It also put the investment bank CEOs into the “power” positions, directly across from Hank, who himself had once run Goldman Sachs. Hank began speaking. He was articulate and forceful, in stark contrast to the way he could stammer and speak in half sentences when holding a press conference or talking to Congress. I was pleasantly surprised and seeing him in his true element, I thought.
He got right to the point. We were in a crisis and decisive action was needed, he said. Treasury was going to use the Troubled Asset Relief Program (TARP) to make capital investments in banks, and he wanted ...
Product details
- ASIN : B0061Q688A
- Publisher : Free Press; Reprint edition (September 25, 2012)
- Publication date : September 25, 2012
- Language : English
- File size : 5694 KB
- Text-to-Speech : Enabled
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Enabled
- Word Wise : Enabled
- Sticky notes : On Kindle Scribe
- Print length : 434 pages
- Best Sellers Rank: #913,852 in Kindle Store (See Top 100 in Kindle Store)
- #282 in Corporate Governance
- #301 in Banks & Banking (Kindle Store)
- #512 in Project Management (Kindle Store)
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About the author

Once named by Time Magazine as “the little guy’s protector in chief,” Ms. Bair is a passionate advocate for strong consumer protections in financial services and educating the public on financial basics, starting at an early age. She is the author of Albert Whitman’s Money Tales picture book series, which includes Rock, Brock and the Savings Shock (2006), Isabel’s Car Wash (2008). Princess Persephone Loses the Castle (2021), Billy the Borrowing Blue-Footed Booby (2021) Shark Scam (2022) and Princess Persephone’s Dragon Ride Stand (2022). She also authored a book about the financial crisis for young adults, Bullies of Wall Street (Simon & Schuster, 2015). She has received awards from the Association of Educational Publishers (AEP), the Council on Economic Education (CEE), the JumpStart Coalition, and Institute for Financial Literacy for her educational writings.
Ms. Bair has had a long and distinguished career in government, academia, and finance. She is perhaps best known as Chair of the Federal Deposit Insurance Corporation (FDIC) from 2006 to 2011, when she steered the agency through the worst financial crisis since the Great Depression. For her leadership of the FDIC, she received the JFK Library’s Profiles in Courage Award and was twice named by Forbes Magazine as the second most powerful woman in the world. A former finance professor and college president, Ms. Bair has been nationally recognized for her innovative initiatives to make college more accessible and affordable. She is a frequent commentator and op-ed contributor on financial regulation and the student debt crisis, as well as author of Bull by the Horns (Simon & Schuster, 2012) her memoir of the financial crisis, which made the New York Times, Wall Street Journal, and Washington Post bestseller lists.
She is a trustee of Economists for Peace and Security, a group composed of some of the world’s most renowned economists and public servants dedicated to peace and world prosperity; a founding director of the Volcker Alliance, established by Former Federal Reserve Board Chair Paul Volcker to build trust in government, and the founding chair of the Systemic Risk Council, which monitors and advocates for reforms to promote financial stability. She also serves as a board member or advisor to a number of public companies.
Watch this CNBC video and article about Sheila Bair’s Money Tales series and her passion for helping kids and their parents learn money basics.
https://www.cnbc.com/2021/09/18/how-to-raise-financially-healthy-kids.html
Watch Sheila Bair talk with CNBC about the meaning of money.
https://www.cnbc.com/video/2019/05/09/former-fdic-chair-sheila-bair-sees-money-as-a-means-to-an-end.html
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Sheila Bair's book is from a quite different perspective, that of a government regulator at a high enough position that she was able to wield a fair amount of influence on not only US Government policies but also international negotiations intended to deal with the ongoing crisis and to prevent its recurrence in the future.
The heart of Bair's story about her serving at the helm of the FDIC begins in Chapter 2, "Turning the Titanic" in which she describes how she found that she had inherited a dysfunctional organization with low morale. Her first task was to straighten out management of the organization itself. According to her story, she achieved a dramatic turnaround, and she provided enough corroboration to leave little reason for doubt that she had indeed achieved that.
A number of subsequent chapters discuss Bair's role in working with other regulators in dealing with policies such as mortgage standards and bailouts of the megabanks. If one believes Bair, which I do, some of the key regulators were little more than lackeys for the banking industry. In particular, the Office of Comptroller of the Currency (OCC), and Timothy Geithner, Secretary of the Treasury. Bair appears to have been largely a "lone wolf" arguing for more robust banking regulations. The other key player, Federal Reserve Chairman Ben Bernanke, comes across as somewhat mixed, but a little bit more on the good side than the bad. (aside: It is an obscenity that Tim Geithner still serves as Treasury Secretary)
In the chapter "Stepping over a Dollar to Pick up a Nickel", Bair discusses the efforts to develop mortgage remediation programs. From her perspective, even though aggressive efforts by lenders to refinance salvageable mortages made a great deal of economic sense, on account of the large losses incurred in the foreclosure process, refinancing was largely paralyzed because of such factors as upside-down financial incentives associated with the tranche structure of mortgage derivatives (in which some stakeholders actually benefitted when the mortgage wound up losing more money), as well as a plethora of mortgages being owned by fly-by-night "servicers" without the staff to competently pursue the refinancing of individual mortages. Bair advocated for governmental intervention to perform refinancing en masse on apparently qualified mortgages, but was shot down by objections that without going through the conventional refinancing process on an individual basis, some of the "bulk" refinancing would be unjustified- e.g. go to "house flippers" or people who actually could easily pay their mortgage. Her assessment of the situation was the basis for her title to that chapter.
A considerable amount of the book involved discussion of the particular efforts to bail out Citibank, apparently the worst of the megabanks. Tim Geither, whose "mentor and hero" Robert Rubin had been head of Citibank, appeared to have devoted a tremendous amount of his time at Treasury toward finding new ways to bail out Citibank, as well as to try to tailor new banking regulations to try to camouflage how sick the worst of the megabanks, Citibank and Bank of America, truly were.
Bair covers a good deal on the negotiations associated with the development of the Dodd Frank financial reform bill. This was very enlightening to me, since I didn't know much detail about Dodd Frank but was skeptical based on claims that it didn't fix what mattered but added unnecessary nuisances to the banking industry. Bair makes a compelling case that it is, to the contrary, an essential piece of legislation which plugs many of the holes in the system exposed during the meltdown.
She expresses exasperation at the Tea Party, which opposed the banking bailouts, but also was negative toward Dodd Frank. Much debate on Dodd Frank centered around whether it genuinely eliminated "Too Big to Fail". From this book I conclude that Bair overall makes a pretty strong case for her side.
Although she does not expound on this in detail, I think this exposes a flaw in the Tea Party mentality. They appear to want a free market based financial system, along the lines of the Austrian school of economics, with the most prominent political exponent being Ron Paul. However you cannot pursue policies that were designed for one system when you are operating under another. Perhaps if you didn't have a Federal Reserve that doles out financial heroin in the form of zero interest rates, bankers wouldn't become leverage junkies. But that is nor our system.
I think this gets at a fundamental problem with Alan Greenspan's role at the Federal Reserve. As head of about the most anti-libertarian organization that could possibly be conceived, the Federal Reserve, a quasi-governmental central bank that manipulates the financial system in an attempt to smooth out the ups and downs in the economy, he pursued libertarian policies with regard to banking regulations. It's like applying the rule of Football to a Basketball game.
Although I have considerably changed my opinion of Dodd and Frank based on this book, I do believe there is a lot of evidence for them having played a negative role leading up to the financial crisis, but I now see them as mixed bags rather than villains as I had before. (or perhaps "reformed villains" is a fairer way to put it)
This ties into some points made toward the end of the book regarding this same issue. In Bair's opinion, the problems associated with megabanks tend to be associated with their complexity, not their size. Thus, she believes that there is not a need to break up the large banks, but in some cases they may need to be restructured so that the divisions within the company line up with the specific lines of business it is engaged in.
What appears to be the most important tool in Dodd Frank to eliminate the "too big to fail" problem is the requirement that the megabanks formulate a "living will" for how they would be broken up in an orderly manner if and when the company found itself in dire financial straits. I am inclined to believe that the extent to which the too big to fail problem has genuinely been resolved will be determined by whether the mega banks come up with bona fide living wills.
Bair played a role in developing the banking standards known as Basil III. Earlier in the book, she discusses the Basil II European banking standards and how they were far too lax and contributed greatly to the European banking crisis. Bair emphasizes the importants of capital requirements for banks. She and her allies were able to turn the tide in Basil III against the advocates of lax banking standards, so we can hope that Basil III provides a more stable banking system in the future.
While much of the book is about Bair's efforts to influence new regulations under development, in the chapter "Too Small to Save" she discusses some examples of the FDIC's actual bread-and-butter work, the orderly shutdown of failed banks.
In the final chapters Bair gives her views on reforms of the financial system as well as US fiscal policy. A number of her views agree with ones I have come to believe, which naturally enhances her credibility as far as I'm concerned. Examples are: She disagrees with advocates of increased debt (no names, but it sounds like she is referring to Krugmanists), on the basis that further borrowing at current low (and thus supposedly benign) interest rates belies the fact that the bond market is a highly distorted one in which interest rates are artificially low for various reasons, and when the inevitable reversal of that trend occurs, the fallout will be all the worse the more debt there is. On fiscal policy, she dislikes the popular bipartisan "temporary holiday" on social security taxes (as an undermining of the revenue base for that important entitlement program, exactly my sentiment), and believes in broadening the tax base (e.g. eliminating the differential treatment of capital gains versus regular income, and even phasing out the mortgage interest deduction. I also support the latter, although it is one of cases where what is right will probably never prevail, because it is far too entrenched in the system.
The general feeling I get from this book is that Sheila Bair very likely has the deepest understanding of our financial system of anyone alive, and perhaps also the best understanding of anyone alive about how to improve it. In addition, her writing style is outstanding. She covers dry technical topics as succinctly and readably as they can be, and has also included a goodly amount of material that is enjoyable to read on a human interest level. Her outstanding writing ability combined with her unique perspective on the financial crisis created by her tenure as head of the FDIC, makes it a safe bet that this will be recognized as one of a handful of classics that document the financial crisis of our time.
Bair begins by discussing the "golden years" prior to the crash and her beginning stint at the FDIC. She thought regulation too lax and found herself fighting a course of change at the agency. When the implementation of something called Basel II advanced approaches (this allowed banks to reduce capital standards) took hold in Europe, pressure was on to do the same in the U.S. Bair explains how she resisted this change and the large amount of pushback she received - fortunately, it was not implemented going into the upcoming financial crisis. It seemed that the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) took positions that were advantageous to the larger institutions.
She describes clearly the mentality that led to the crisis. For example, "hybrid ARMs were not being offered to expand credit through lower introductory payments; they were purposefully designed to be unaffordable, to force borrowers into a series of refinancing and the fat fees that went along with them." She observed that, by 2006, practices viewed as predatory in 2001 were now mainstream among the major mortgage lenders. The cause, in a word, was securitization. We are given an explanation of the tranche system and also how the government-sponsored enterprises (GSEs) -Fannie and Freddie - issued bonds at cheap interest rates and used the proceeds to buy mortgage-backed securities (MBS). Nice system. Use cheap debt to obtain money to buy risky, high-yield securities. She continues on explaining why foreclosing on mortgages was more profitable for the triple-A tranche investors than loan modifications, also noting "industry recalcitrance, regulatory squabbling, and Treasury indifference." Then there was the WaMu debacle - this too was a very interesting story. Following this, we learn of the Wells Fargo acquisition of Wachovia. Bair wonders if we overacted to the situation in bailing out the banks, noting how she was appalled how these bailed out institutions just months after receiving generous government assistance began paying out huge bonuses to their executives. "Were we stabilizing the system, or were we making sure the banks' executives didn't have to skip a year of bonuses?" Next on the list is the bailout of Citi. Citi was a sick bank, it received a large chunk of TARP capital, and was one of the most thinly capitalized of the big banks.
It is interesting to follow Bair's description of the interactions between the FDIC, the Fed, and the OCC, during the decision making process. The FDIC and the others were often at odds. It makes me wonder whose interests were most important. What frustrated Bair was all the focus on making sure we're not unduly helping borrowers but then providing massive assistance at the institutional level. It appears the economists at the White House and Treasury were holding on to the "ideology of government laissez-faire and 'self-correcting' markets," but Bair knew the markets would not correct on their own. The securitization process created conflicting interests among owners of MBS and also the servicers of the loans who were responsible for the mitigation of loss through loan restructuring. Bair provides all the details.
When the government did finally release a program to help homeowners called the Home Affordable Mortgage Program (HAMP), Bair became horrified to learn that Fannie Mae and Freddie Mac were in charge. They were the biggest holders of the Triple-A subprime MBS! "Every interest rate that was reduced for a distressed borrower could potentially eat into their returns," retorts Bair. She makes clear that the program was "designed to look good in a press release, not to fix the housing market." Was helping homeowners ever a priority one wonders. In discussing the Treasury's Capital Assistance Program, which involved stress testing the balance sheets of companies with assets in excess of $100 billion, it seemed that the Fed, Treasury, and OCC were not very "committed to forcing banks to sell bad loans and other investments." Here again they're bailing out big guys, but the little banks would be subject to the FDICs harsh terms if they failed. It seems that the Treasury just did not want to cede any authority over the cleanup to the FDIC.
Being distressed at how the Fed lent trillions of dollars to large banks, hedge funds, and asset managers without any requirements of an explanation as to why the programs were needed, eligibility requirements, or who was profiting and by how much, Bair pushed for legislation that would include anti-bailout language - it seems the government still wanted the ability to provide bailouts. Such legislation managed to pass the house in December 2009. She further discusses the efforts to require banks to raise prerequisite equity before exiting TARP, as the government was pressuring all of the institutions to exit the program at the same time. Astonishingly, after exiting TARP and having restrictions lifted, she notes that the banks "were announcing bonuses that rivaled the amounts that they had paid before the crisis." Here again, she wondered if the bailout was more about making sure those guys didn't have to skip any bonuses, rather than protect the system. Bair was frustrated by the "lack of leverage in forcing more meaningful action to address the housing crisis." She provides some interesting information - for example, robo-signing by the loan servicers, who she claimed were underfunded and mismanaged by the major banks resulting in many loans going to foreclosure when it would have been less costly to just modify them.
In the chapter "The Return to Basel," she discusses the push for a Basel III framework, which focused on improving the quality and quantity of capital held by the international banks among other things. We see here the dynamics between the Fed, FDIC, OCC, European nations and Japan. We then learn of the many small banks that she refers to as "too small to save." During her tenure, 365 small banks were closed - a casualty of the recession; in these cases, the shareholders are wiped out and the boards and senior management are fired. There is talk of loss-share agreements, the Puerto Rican crisis, and the controversial Shorebank resolution. Throughout this period, Bair couldn't help noticing the inability of members of Congress to "work together and make decisions for the benefit of the country" - a problem we are still witnessing.
Bair closes by providing some recommendations for financial reform, such as maintaining the ban on bailouts, breaking up mega-institutions, requiring securitizers to retain risk, requiring an insurable interest for credit default swaps, imposing assessments on large financial institutions, keeping the consumer protection agency, restructuring the financial stability oversight council, abolishing the OCC (she notes that they failed miserably in maintaining the safety of the national banks it regulates), merging the SEC and the CFTC and giving them independent funding, ending the revolving door between government and industry, and reforming the senate confirmation process. She also lists some things to improve the financial system as a whole: abolish the GSEs (Freddie and Fannie), tax code reform, and reduce the national debt. She discusses these issues fully and they make a lot of sense to me.
Bair concludes with a few thoughts of how things could have been different. The mortgage mess could have been averted by the Fed applying proper lending standards for bank and nonbank lenders. Congress should not have tied the hands of the CFTC, SEC, and state insurance regulators in imposing common sense regulatory controls on credit default swaps. Industry pressure resulted in lowering of capital standards, and regulators were barred from overseeing the derivatives market. She says, "This is why I have written this book. I wanted you to see the crisis through my eyes and experience the obstacles that stood in my way as I tried to push for reform measures that were so obviously needed." There is so much to recommend this book - just read it.
Top reviews from other countries
I read more than half of this book and then I changed temporary to Timothy Geithner's book Stress Tests because material is highly relevant nowadays.
What to say:
- Bair's book five star because of clarity, honesty, dedication and good judgement and also fantastic describal of arcane bank regulation
Geithner's book four star because of higly relevant materia, some good sentences, some good explanation of banking regulation and input of his broad education on his decisions.
But at least for me remains a mystery if Geithner's constant stress on systemic risk is really relevant on all times and if Sheila Bair is perhaps too narrow minded to understand a situation that was so cristal clear to Timothy Geithner. Is the truth somewhere in between?
It highlights and details the battles, often spiteful, rankerous and treacherous, fought primarily between the US Treasury led Treasury Secretary Tim Geithner, The Office of the Comptroller of the Currency, The Federal Reserve Bank, the FDIC, the now defunct Office of Thrift Supervision, the Securities Exchange Commission, and various Congressmen and Senators. In essence it seems that at one end of the battlefield was Tim Geithner fighting tooth and nail for the interests of big business, and being opposed by Sheila Bair and the FIDC seeking to protect the interests of the smaller commercial interests and the little guys particularly homeowners struggling with mortgage arrears and foreclosures. The others wandered about the battlefield vacillating from one camp to the other as the fancy took them frequently coming under the intense fire of Tim Geithners abrasive, and at times tirade of expletive laden verbal lashings , as well as dirty tricks such as deliberate leaks to the press.
Certainly in reading this book one gets the clear impression that large chunks of the government championed by Geithner werte far more interested in preserving the status quo of the big banks and their mega-earning senior people than serving the broader interests of the American people. Bair's main concerns that the Treasury's mortgage modification program was never really designed to fulfill the administration' promise to help millions of homeowners, and the bailout landscape still showed favoritism towards Wall Street and the betrayal of Main Street,. She was also extremely concerned that the proposed bank capital increases to ensure better protection from banks failing in future economic meltdowns, were not sufficient and that the government was giving far too much weighting to the vested interests of Wall Street.
Also interesting was the disclosure of the complex intertwined relationships that existed between some of the players involved in the shaping of policy and implementation. Seemingly the worst financial position of any of the major banks was that of Citibank which was in a far worse financial state than Lehman Brothers which was allowed to fail. Tens and tens of $billions of taxpayers money was on multiple occasions authorised by Geithner to be pumped into the ever grasping coffers of Citibank to stave off bankruptcy. Interestingly Geithner when Under Secretary at the Treasury for International Affairs was widely regarded as being the protege of Treasury Secretary Robert Rubin who went on to join Citigroup as a director and senior counselor serving temporarily as Chairman resigning from Citigroup in 2009. During his tenure at Citigroup he received more than $126 million in cash and stock up through and including Citigroup's bailout by the US Treasury. Not a bad reward for being an integral part of the top management that steered the company onto the rocks of virtual bankruptcy. The mind boggles at how much he would have received had the company been successful?
In her final conclusions and recommendations for reducing the risk of another economic disaster are:-
1. Raise Financial Institution's Capital Requirements beyond Dodd-Frank and Basel III requirements.
2. Forever Ban Bailouts.
3. Break Up the Mega-institutions.
4. Require an Insurable Interest for Credit Default Swaps.
5. Impose an Assesment or Tax on Large Financial Institutions.
In an excellent and well reasoned finale Ms. Bair sets out a series of helpful suggestions on how to make the Regulators work better, and a section of proposals that will make the entire Financial System work more purposefully such as Abolish the Government Sponsored Enterprises like Fannie Mae and Freddie Mac, and stopping the Subsidizing Leverage (borrowings) Through the Tax Code.
In conclusion Sheila Blair stresses the need to appoint strong independent people to regulate financial institutions and markets, people who understand that their regulatory obligation is to protect the public, not the large financial institutions. When Geithner testified before Congress shortly after becoming Treasury Secretary a congressman asked him about the effectiveness of regulation, and he proudly responded "I have never been a regulator, for better or for worse." Gobsmacking as he did not even understand that as the fundamental part of his job as president of the New York Fed was to regulate some of tha nation's largest financial institutions. Indeed, he seemed offended that the congressman asking the question thought he was a regulator. Without those supposedly regulating being unaware of those responsibilities is it, therefore any surprise that the 2008 financial catastrophe occured?
This is an absolutely first class, informative, thought-provoking and highly interesting book.
POSTSCRIPT: As in many books of this type there was extensive use of acronyms which required constant referral to either prior pages or the index at the end of the book. A book marker detailing all of the acronyms used would have been of tremendous use and made for a more continuous read.





