Forbes named her the second most powerful woman in the world in 2008 and 2009. Said to be “thoughtful, practical, independent-minded—a straight shooter with political savvy” (in the words of Steven Pearlstein, Pulitzer-prize winning Washington Post columnist), Sheila Bair was the chief of the Federal Deposit Insurance Corporation (FDIC) when the financial crisis unfolded in 2008. Along with Hank Paulson, Ben Bernanke and Timothy Geithner, she was a part of the A-team that engaged with the massive economic challenges from the financial meltdown.
Sheila Bair sparring with the big banks and Geithner
Her book, “Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself,” published last year, is a detailed and forthright account of those troubled times, and also details her frequent brushes with the larger banks as well as powerful figures such as Geithner himself. Not just historical, the book also contains Bair’s considered analysis of the crash, as well as her suggestions on how the country’s financial system could be repaired.
Sheila Bair: Freddie and Fannie were cozy with Wall Street
She is highly critical of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), major players in the housing market, which was the epicenter of the crisis, saying their hybrid nature “led to disastrous consequences,” and that they enjoyed a “symbiotic relationship” with the big Wall Street players. Bair is unequivocal in the book that the two GSEs should be wound up.
Washington’s current dilemma and Bair’s prescription
Sheila Bair wrote recently in Fortune magazine that “taxpayers must remind it (Congress) of the harmful role the duo played in the subprime mortgage meltdown,” because of Washington’s famously short memory.
The politicians are still at odds about how to reduce the role of the government in the mortgage markets of the country – they would like to shield taxpayers from a repeat of the 2008 debacle, as well as have private enterprise take over the responsibility and risk of mortgage financing the housing industry.
According to Sheila Bair, the country is still holding the bag for the excesses committed by Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA): “But as for-profit entities, the GSEs discovered they could make big bucks operating essentially like giant hedge funds, issuing cheap debt with implicit government backing and investing the proceeds in high-yield, high-risk mortgage securitizations issued by Wall Street.”
She recommends that the two companies be abolished.