Former FDIC Chair Sheila Bair
http://thedianerehmshow.org/shows/2011-09-07/former-fdic-chair-sheila-bair
Sheila Bair recently stepped down as chair of the Federal Deposit Insurance Corporation. The agency watches over banks and insures deposits. Bair played a key role in the Obama administration's response to the financial crisis that began in earnest in 2008. She has been credited with sounding the alarm on sub-prime mortgages. She has clashed with other regulators - and the White House - and remains opposed to bank bailouts. Reflecting on the tumultuous period she served, she said the FDIC's job is "to protect bank customers, not banks." A conversation with Sheila Bair.
Guests
Sheila Bair
senior adviser, The Pew Charitable Trusts; former chair, Federal Deposit Insurance Corporation.
Comments
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Dear Diane,
One of your Friday callers, Lynda, an appraiser from (Pittsburgh or Michigan) talked about an interesting idea. She suggested that, banks should be held responsible for maintaining foreclosed houses in "safe and habitable" condition. This is a simple and brilliant idea that I would love to hear more about. Is this appraiser from somewhere back east available for more input? Could you, Diane, at least raise the topic with former FDIC Chair, Sheila Bair, as she comments on the effectiveness of the Dodd-Frank bill on your Wednesday, September 7 show? I know there is a "Mortgage Reform" component to the bill but nothing as simple and logical as Lynda's idea is included.
Thank you for all that you do!
David (Tucson)
David:
I believe if it was bought on a VA or FHA loan, the house belongs to the Federal Government or really the taxpayer.
http://www.TrumpTowels.com/fbi
According to FBI, you were not supposed to see these documents until 2030 - pay attention to the stamps.
I wonder if Ms Blair would care to comment on the recent audit performed on the Federal Reserve by the GAO? This question relates to Ms Blair's stance on not bailing out the banks. The real question remains - is the Federal Reserve out of control and how does the Fed serve us, the public vs the corporation?
Sheila have so much respect for your intellect and your honesty.
We keep hearing that the banks are sitting on 2.5 trillion. Was that part of the loan package?
We also keep hearing that Fannie and Freddie were the main culprits of all the bad loans. Is this true
Also have the banks paid back all the loans? Were they charged interest? Did the banks make money off those loans?
David
In reference to your comment: ". . . Lynda, an appraiser from (Pittsburgh or Michigan) talked about an interesting idea. She suggested that, banks should be held responsible for maintaining foreclosed houses in "safe and habitable" condition."
That is a good idea. In Chicago, the city council introduced this as an ordinance. It can work when the Bank takes possession after foreclosure. However, the foreclosure process in Illinois is a judicial process, which can take a minimum of 9 months and up to 2 years. As of July 2011, there are 75,000 pending cases, and currently there are 3500 foreclosure filings per month. And there are fewer than 10 judges assigned. Needless to say, they are flooded. The judges first focus on a mediation process (loan modification), which is better than foreclosure since the owner remains in the home. Otherwise, an abandoned home or building is an invitation for squatters - usually drug dealers and prostitutes. If it takes 2 years for the bank to take possession, the property is in bad shape. Then the residents of the neighborhood spend their non-working hours with police in keeping down crime.
In Illinois, approximately half a million homes are underwater. If these go into foreclosure and there are few loan modifications, the state will see another deluge of processed foreclosures, and abandoned buildings in the process. This all costs taxpayers big time: the court costs, the extra police needed to handle the increase in crime and to enforce the ordinance, as well as deflation of our homes.
Before the bubble burst, the banks were swimming like sharks feeding on prey while the feeding ground was deep and dense. Now that the prey has diminished, they want no further restraints on their next feeding frenzy. That is what society looks like when anarchy is the prevailing ideology. Suits those who are wealthy and powerful, but does nothing to protect those who operate with a conscience.
FDIC Insurance promotes bad banking, makes consumers not care where they deposit they funds. Government does too much consumer protection and this makes for careless consumers. Consumers should be required and held accountable for their homework. High school education should emphasize this.
Dear Diane,
Thanks for bringing Sheila Bair to the air this morning. She is a great case for wise government regulation!
I am currently undergoing HUD-funded HAMP counseling here in Cincinnati. I have been very impressed with the program. It is teaching more than I knew I needed to know about home ownership and overall financial decision-making. It is forcing me to sit and make a more sophisticated budget, and it is helping me to understand my financial situation in a way that is making me cautiously optimistic (!) about my financial future. Most important, perhaps, is that it is giving me back a sense of CONTROL in a time when individual American citizens seem to be at the mercy of forces far beyond our control. I am very grateful for this program, and wonder if there are ways to push this kind of education into the private sector, making it part of the whole formula of home sales and financing sales. I realize this would cool the jets on a lot of sales, but isn't that what we need to do for each other?
Lily
If the Glas Steagall legislation would have still been in place in the early 2000 would any of this happened?
What needs to happen for national banks to return to regional banks and would it have kept the national housing debacle isolated had they never been allowed to overgrow?
Sheila does anyone belong in prison for this banking debacle?
Could Ms Bair comment on how to resolve what is known as "securitization failure", where loans that should have been transferred into a mortgage-backed security were never transferred and now it is too late to transfer them?
Just up at Reuters:
"New York prosecutors are widening their investigation into the manner in which Goldman Sachs (GS.N) marketed certain mortgage-linked securities before the financial crisis, the Wall Street Journal reported, citing people familiar with the matter."
Sheila are you surprised that not one individual banker has been held accountable for this banking debacle?
Kathleen:
The banks have paid back the loans. I owned BAC stock ( sold it since) and I called their Investor Dept. when BAC announced that it was paying off the loan early. My main concern in calling was that the 250 shares I owned were paying me $0.65 a share quarterly and that had been reduced to 1 cent a share when TARP came into existance. I wanted to know that since the loan had been paid off, would dividend increase again.
The BAC representative told me because of the warranties, the Feds were still calling the shots. I believe, not sure, but the reason banks are sitting on so much money is the fear that if a lending institution does not have a certain amount of asset the bank goes into receivership again. They are somewhat in a Catch 22. The banks want the Feds off their backs, but the Feds are contributing to the problems.
Diane,
I think Ms. Bair dodged the questions regarding the "loss-share" deals that the FDIC made. By her own admission, the FDIC was already out of the money by fully reimbursing depositors at those institutions. All that would have been left then would be the assets of the bank, which were probably valued at pennies on the dollar anyway. The purchasing institution would be able to purchase the loans at minimal values, in theory. So, why would the FDIC agree to further "loan loss sharing" on shoddy loans? This move would only serve to protect bond holders and CDO holders, not the taxpayers or the homeowners.
If loan modification was part of the deal, I suppose it makes sense, but Ms. Bair did not state that as the first and foremost reason behind these deals. Otherwise, these deals look like they place additional contingent liabilities on the American Taxpayer via the FDIC. It reminds me of the PIPP private placement program by the Federal Reserve, whereby the Fed made loans to private parties to purchase "toxic assets" under the terms that the private party would get all the profit while the Fed would bear 90% of the losses.
Hi Diane,
Ms. Bair states that at this point every bank is operating under a one person to review the account, she doesn't seem to be aware that even though there are at least 4 people working an account and that person is handling about 300 accounts. There seems to be a lot of incentives from the GSEs to encourage short sales and modifications which has seemed to cause a abuse inside the institutions. The banks have people that put people in modification status but don't follow through because the homeowner doesnt qualify.
"Attilio wrote:
FDIC Insurance promotes bad banking, makes consumers not care where they deposit they funds. Government does too much consumer protection and this makes for careless consumers. Consumers should be required and held accountable for their homework. High school education should emphasize this."
Kudos Attilio:
Nor should some solvent banks had been required by law to accept TARP money.
@meanconser:
You should read some of the articles by Matt Taibi. B of A and company paid off the TARP loans, but they did it by borrowing Fed money. Bank of America is a particularly tragic creature, since it's former CEO, Ken Lewis, is really responsible for its current circumstances through his decisions to buy Merrill Lynch and Countrywide. If not for those to black eyes, B of A would be in a lot better shape.
Ultimately, the status of these institutions needs to be laid bare to the public to see in order to instill any confidence in them. Of course, you can imagine, they would have done that already, but for the fact that they know we would all run away in horror if we really saw what these guys were made of.
Dear Diane and Ms Blair,
Thank you for taking my call and I'm sorry; I think my cellphone dropped the call. Lucky for me my message was clear prior to the drop.
Thanks again,
Karen from Ann Arbor
Diane,
I love your show and agree with 90+% of your viewpoints, but I think you should remind the listeners that the bank situation is not as simple as “Bank in trouble – CEO to blame!”
Any business has to make business decisions, based on realistic probabilities and expectations. Probabilities do not always work. A failed result is not necessarily evidence of wrong-doing. [Analogous logic: We should blame Governor Perry for allowing forests in Texas. Didn’t he know that could create forest fires! :-) ]
I don't mean to deny the other side of the coin. A series of truly inept decisions should NOT be rewarded. One must, however, be realistic in evaluating the circumstances.
Rudy
Dallas
Ms. Blair,
Thank you for your comments. I would like to say that your comments made the economic tragedy of toxic assets easier to understand. But, I cannot come to grips with why the home that I bought in 7/2006 at 290,000 and have maintained mortgage payments for these several years is not worth, according to on line estimators, @150,000 and refinancing my 6.5%% remaining balance of about 220,000 is out of the question. Current mortgage rates are @4% and, as I am retired and disabled, the savings in a lower rate would enable me and my spouse a little more comfort and flexibility.
The irony of needing to pay the cost of applying for a refi and the cost of refiling the mortgage on top of the inability to get a bank to talk with me at all is very frustrating.
Meanwhile, we are not going anywhere and love our home.
The frustration continues to be realizing that almost $150,000 in value has simply disappeared and there is nothing that I can do about it.
Ms. Blair,
Thank you for your comments. I would like to say that your comments made the economic tragedy of toxic assets easier to understand. But, I cannot come to grips with why the home that I bought in 7/2006 at 290,000 and have maintained mortgage payments for these several years is not worth, according to on line estimators, @150,000 and refinancing my 6.5%% remaining balance of about 220,000 is out of the question. Current mortgage rates are @4% and, as I am retired and disabled, the savings in a lower rate would enable me and my spouse a little more comfort and flexibility.
The irony of needing to pay the cost of applying for a refi and the cost of refiling the mortgage on top of the inability to get a bank to talk with me at all is very frustrating.
Meanwhile, we are not going anywhere and love our home.
The frustration continues to be realizing that almost $150,000 in value has simply disappeared and there is nothing that I can do about it.
I have been trying to short sale for over 9 months. The banks have drawn out the process. At no time have they offered to modify. Most modifications are interest lowering. That does not address underwater properties where there has been a tremendous loss of value. It seems that there is a policy to drive people into foreclosure. Are the banks able to write off the loss of the total amount? That would make them stall and drag on until they can get a write off rather than the short sale value loss.
Diane
Why don't you have a show with Architect Richard Gage??????????
What are we covering up? Do We have anything to hide?
http://www.TrumpTowels.com/fbi
If you cannot handle facts, get out of the Media Business.
"Sam in Texas wrote:
@meanconser:
You should read some of the articles by Matt Taibi. B of A and company paid off the TARP loans, but they did it by borrowing Fed money. Bank of America is a particularly tragic creature, since it's former CEO, Ken Lewis, is really responsible for its current circumstances through his decisions to buy Merrill Lynch and Countrywide. If not for those to black eyes, B of A would be in a lot better shape."
Sam:
I question Matt Taibi who writes for Rolling Stones. I would prefer an unbias periodical from say the Wall Street Journals or one that has higher population readership.
What lots of people do not realize along with much of the media is that BOA is the GE of banking. There are many entities under the BOA unbrella that are highly profitable. They have Commerial Banking, credit card division which were still profitable and they even owned a big junk of China Commerical until recently selling it recently to raise money for these upcoming lawsuits.
I believe another thread stated that they used Taxpayer money to pay back the loan so as to get out of receivership. I find that hard to believe.
People were saying the same thing of AIG and had a cow when they were paying off bonuses to executives, however AIG had other entities outside insurance that were very profitable as a result of the the people that were running those entities.
Ken Lay did make mistakes in purchasing Countrywide. But correct me if I am wrong the Feds influenced BOA to purchase Merrill. It was of those weekend deals. Didn't HBO make a movie of this recently?
@meanconser:
"I question Matt Taibi who writes for Rolling Stones. I would prefer an unbias periodical from say the Wall Street Journals or one that has higher population readership."
The Wall Street Journal is "unbiased"? really? and this is a function of having higher readership? I guess you like the conventional wisdom, but the conventional wisdom didn't see any of this coming. Actually, several other outlets picked up on Taibi's work. Several articles have now been written regarding the Fed's role in 2008 as a result of the disclosure of some 20,000+ documents by the Fed per congressional order. The Atlantic Magazine has several good articles on this issue.
The fact of the matter is that the big banks were all insolvent in 2008, and they still are today by virtue of the fact that they will not be able to avoid the liability on the bad CDOs they sold. In fact, it may turn out that AIG is quite solvent in the end, and maybe even Lehman was too.
Diane, Your online broadcast differs from the original broadcast.
Why the change? Please restore and broadcast the orginal broadcast online so that all can listen to Ms Bair's remarks. Also seems that music is played instead of Ms Bair's comments.