Sheila Bair (FDIC): Damning With Faint Praise


Let’s start with the last first….

That public trust is sacred, and it is the very foundation of the long-term success of your industry.

If bankers and regulators are to uphold that trust, we must demonstrate the ability to work together and engage in long-term thinking that will protect consumers, preserve financial stability, and lay the foundation for a stronger U.S. economy in the years ahead.


Sheila seems to think that there’s any sort of trust to regain?  Shirley you jest – or is that Sheila you jest?

Back up the page a bit we find…..

Instead, the biggest long-term risk to the success of the banking industry would be its failure to support the reforms needed to ensure long-term stability in our financial markets and our economy.

The American people have suffered enormous economic losses as a result of the financial crisis.

The American people suffered enormous economic losses as a result of fraud which in turn resulted in the financial crisis.  Yet the people who engaged in that fraud, from top to bottom, have not paid for it.  They have not been indicted, prosecuted or jailed.  Not only have they not suffered criminally, they weren’t forced to give back the money they stole either.

In April 2010, a Pew Research poll found that just 22 percent of respondents rated banks and other financial institutions as having “a positive effect on the way things are going in this country.”

I suspect if the Pew Research group included a response “hang them all from lamp-posts” that would have gotten the other 78% of the responses.  Of course Pew wouldn’t include something that would allow an honest expression of the depth of hatred that many have for the people in this industry. 

Then again, can you blame the public for that hatred?  It’s one thing to lose your home and everything you worked for as a result of raw speculation that you knew was dangerous, got involved in anyway, and lost the bet on.  That happens all the time, and most people deal with it.  It’s part of the risk:reward paradigm.

But it’s an entirely different matter when you’re told repeatedly that you can afford this house, you can afford to take on this credit, we’re the nice guys in the expensive $5,000 pinstripe suits and we’ve run our computer models and our simulations and this product is both safe and suitable for you.

Of course all of these representations turned out to be a pack of lies.

When we issued proposed guidance on non-traditional mortgages, industry comments found the guidance too proscriptive, saying that it “overstate[d] the risk of these mortgage products,” and that it would stifle innovation and restrict access to credit. Later, when we proposed to extend these guidelines to hybrid adjustable-rate mortgages, which at that time made up about 85 percent of all subprime loans, we received a letter co-signed by nine industry trade associations expressing “strong concerns” and saying that “imposing new underwriting requirements risks denying many borrowers the opportunity for homeownership or needed credit options.”

For our part, I think it is clear in hindsight that while our guidance was a step in the right direction, in the end it was too little, too late.

Fraud is fraud Sheila.  Lending people you know they can’t pay back and then playing “hot potato” with the paper, lying to the buyer of the paper so he’s induced to “invest” in something you have every reason to know is going to explode in his face, isn’t “too little, too late.”  It’s a scam.

At this point we’re not speculating any more.  We have sworn testimony that this happened.  That major financial institutions knew they were selling crap to investors – as much as 80% of their production in 2007.  That’s in the record in the form of sworn testimony at this point in time.

Oh yes, the non-bank issuers were worse.  But if the regulated banks had 80% of their production represented by fraudulent and bogus paper, does that not mean that the non-bank lenders were probably peddling paper that 100% garbage?  This, of course, leads one to ask – does it really matter whether the so-called box of chocolates you’re peddling is in fact 80% or 100% dog turds? 

I think not.

Accidents happen.  Speculation is part of all markets.  But when you have sworn testimony in the record that knowingly bad paper was being peddled and it was the vast majority of all the loans being made at the time, that’s not speculation nor is it an accident.

Nether the FDIC or other regulators in Washington have given a damn about this, you’ve done nothing to stop it, Congress has done nothing to stop it, and nobody has been punished for doing it.  Yet we now know that the only logical explanation in 2007 which I and others put forward – that these loans were in fact both fraudulently issued and sold, was factually true because at least some of the people who were doing it have admitted to the facts under oath.

The balance sheets of households, depository institutions, state and local governments and the federal government all suffered serious damage as a result of the recession. All of these sectors are taking steps to repair that damage, but in some cases it will be a long, painful process.

Now that’s a lie.  Very little contraction in systemic debt has taken place, and what has taken place has all been replaced by the federal government.  Shifting liabilities from one hand to another does not change the amount of the liabilities.  It is simply an attempt to hide them.  That’s a scam too.

But then again, that’s all we have these days in America when it comes to Washington and our so-called “financial markets” and “financial firms”, isn’t it Sheila? 

Whether you like it or not you’re a (major) part of the problem – both past and present.

The Market-Ticker