When Sheila Bair showed up for a meeting in then-Treasury Secretary Hank Paulson’s office in October 2008, the bank regulator had no idea she was about to be asked to guarantee the debts of the entire $13 trillion U.S. banking system.
Bair, who was in charge of backing U.S. bank deposits, had not been told the purpose of the meeting and was surprised to find top regulators waiting for her with the proposal and a script prepared for her to read to the press.
“It was an ambush … an overreach of the worst sort, and there was no doubt in my mind that Tim Geithner was the instigator,” writes Bair, blaming the now Treasury secretary for the proposal. She later succeeded in reducing the scope of the plan.
Bair, the former chairman of the Federal Deposit Insurance Corp., relates the incident in a book on the financial crisis released on Tuesday.
The account, “Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself,” keeps returning to Bair’s complaint that the U.S. government favored the rescue of big banks over helping struggling homeowners.
She also has harsh words for Citigroup Chief Executive Vikram Pandit, and says Geithner, then president of the New York Federal Reserve Board, was too eager to bailout banks like Citi.
On Pandit: “I doubted he was up to the job.”
On Geithner, who she refers to as the “bailouter in chief”, Bair writes: “Tim seemed to view his job as protecting Citigroup from me, when he should have been worried about protecting the taxpayers from Citi.”
The U.S. Treasury Department declined to comment.
Citi received the most federal government assistance of any U.S. bank holding company during the financial crisis, according to a March 2011 report from the Congressional Oversight Panel. The report put the federal government’s exposure to Citi at more than $476 billion.
Citigroup spokeswoman Shannon Bell said the bank is a simpler, smaller and stronger institution than it was five years ago.
“Since Vikram Pandit became CEO during the financial crisis, Citi has executed a strategy based on returning to the basics of banking and building a culture of responsible finance.”
A spokesman for Paulson was not immediately available for comment.
Bair, a Republican, served as FDIC chief from 2006 through 2011, and is widely credited with seeing the mortgage crisis before it happened.
She now serves as a senior advisor to the Pew Charitable Trusts and oversees a new private-sector group called the Systemic Risk Council that is trying to ensure policymakers follow through on reforms laid out in the 2010 Dodd-Frank financial oversight law.
In her book, Bair describes feeling sidelined by other regulators and expresses a sense of impotency over key policy choices.
She criticizes policies aimed at helping struggling homeowners, such as the Home Affordable Mortgage Program, or HAMP, as too complex for borrowers to benefit from, noting that its proponents, including Geithner, were not really committed to helping homeowners.
She slams long-lasting bailout policies, which continued throughout 2009, even after the financial system had been stabilized, “instead of imposing discipline on profligate financial institutions by firing their managers and boards and forcing them to sell their bad assets,” she said.
But Bair said she had some successes tangling with other policymakers, such as convincing Geithner and Paulson to only guarantee some types of debt issued by banks and charge them a fee, resisting the October “ambush.”
Her most cherished accolade during the crisis, she writes, was being named by Time Magazine to its 2008 list of 100 most influential people as “the little guy’s protector in chief.”