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bjbjVwVw MARGARET WARNER: Now, a new book by a former insider takes a critical look
at the government's actions during and after the financial crisis. The fallout from the
crisis and those decisions is still reverberating on the campaign trail this fall. Sheila Bair
was a key player as head of the FDIC, one of the nation's chief bank regulators. She
worked with Treasury Secretary Tim Geithner, Federal Reserve Chairman Ben Bernanke, and
former Treasury Secretary Henry Paulson, before stepping down last year. Her new book is called
" HYPERLINK "http://www.amazon.com/Bull-Horns-Fighting-Street-Itself/dp/1451672489/ref=sr_1_1?s=books&ie=UTF8&qid=1350692491&sr=1-1&keywords=bull+by+the+horns" Bull By the Horns Judy Woodruff sat down with
Bair yesterday. JUDY WOODRUFF: Sheila Bair, welcome. SHEILA BAIR, former chair, Federal
Deposit Insurance Corporation: Thank you for having me. Nice to be here. JUDY WOODRUFF:
So let's just -- just to get some background out of the way, who and what do you think
is responsible for the financial collapse of 2008? SHEILA BAIR: Oh, there's plenty of
blame to go around. I think at the end of the day, it was greed. It was just greed that
was unchecked by government and government regulators. This idea that this is all caused
because the government wanted poor people to have mortgages, that's just not true. I
think expanding access to homeownership for low-income people was a rationalization, but
it was not a driver. A lot of people were making a lot of money, making a lot of irresponsible
loans to frankly the vulnerable parts of our population that didn't understand these mortgages
to begin with, and regulators didn't step in to stop it. JUDY WOODRUFF: And, broadly,
what is it that you believe the Bush and the Obama administrations did right and did wrong
to deal with it? SHEILA BAIR: Right. Well, I think the missteps going up to the crisis
really were both the Clinton and Bush administrations. I think that the three big ones are we didn't
raise bank capital requirements. We didn't constrain the ability of large financial institutions
to use leverage, to use borrowed money to support their risk-taking. Instead, government
took a lot of actions to allow investment banks in particular to take on even more leverage
and fund their operations with borrowed money, instead of their own equity capital. The Federal
Reserve Board had the authority to set mortgage loaning standards across the board for everyone,
banks, non-banks, mortgage brokers. They didn't do that. And then, finally, of course -- and
this was in the Clinton administration -- Congress just said that nobody is going to regulate
derivatives. The SEC couldn't regulate them. The CFTC couldn't -- over op-exchange derivatives.
The SEC, the CFTC, even state insurance regulators were told hands off op-exchange derivatives
market, so we don't think they need be to regulated. JUDY WOODRUFF: So, are you saying
government had its own share of responsibility for what happened. SHEILA BAIR: They did.
Yes, but I would say this is because industry lobbying to stop these kinds of steps from
being taken. JUDY WOODRUFF: And what about in response to the crisis once it happened?
What was done right and what was wrong? SHEILA BAIR: Well, right. Well, I think, as I have
said before, I really question -- the Bear Stearns bailout was done in March of 2008.
We were not in a crisis situation. We were in a deteriorating situation. I never have
seen a good analysis to justify that. But I do think when the government stepped in
to bail out Bear Stearns and support its acquisition by J.P. Morgan Chase -- and Chase was requested
to do that -- that that set up an expectation that the government wasn't going to let these
other institutions fail. And so that sent a signal to Lehman Brothers that was having
a lot of problems that they were probably going to get a bailout too. And they were
a lot bigger than Bear Stearns. So they decided, well, they didn't really take steps to correct
themselves. And because the market had an expectation that there were going to be bailouts,
people didn't take steps on their own to fix their problems. JUDY WOODRUFF: And you're
very critical in the book of the whole bailout process... SHEILA BAIR: Right. I am, yes.
JUDY WOODRUFF: ... and said these banks should have been let go. As you know, the government,
the administration pushes back, saying, if we had let these institutions go, the problem
would have been much worse, and what we have done has at least stanched the bleeding. We
are now back, we are growing, it's slow, but we're growing. SHEILA BAIR: Right. Right.
Well, I would agree, at the end of 2008, we were in a situation that was spinning out
of control. And we needed to do something, so we threw a lot of money at it. But the
major institutions that were insolvent, they were having what we call liquidity problems,
so they were having a hard time because everybody was just so fearful. They were having a hard
time borrowing money to contingent-fund their operations. But they had equity capital. They
were not insolvent. Citigroup was insolvent. Merrill Lynch was insolvent. AIG was clearly
insolvent. But the rest of the institution I think could have bumbled through it. They
might have needed some liquidity support, but they had enough capital to absorb their
losses. But in 2008, we were dealing with a lot of unknowns. And so we threw a lot of
money at it. And I guess I can live with that more. But in 2009, we had a stable system
at that point, and that was really the time when we needed to start imposing some pain
and accountability. Very sick institutions like Citigroup should have been fundamentally
restructured and broken up. But we didn't even -- we couldn't even get conversations
going about that. JUDY WOODRUFF: Do you feel you did enough to speak up internally against
all this? SHEILA BAIR: Yes. When Congress did authorize all this TARP money, it was
my clear understanding -- and one of the reasons I participated in these bailouts -- was that
we were going to get a big loan modification program, wide scale, to prevent unnecessary
foreclosures from occurring. And it never happened. Didn't happen under Bush. Didn't
happen under Obama. So I do -- that does still make me angry. And, no, I spoke out about
it a lot. I was being criticized for speaking out about it a lot. On the bailouts, maybe
I should have done more. We were asked to guarantee all the debt of all the financial
institutions. And we said, no, we weren't going to do that. There is a -- I was -- I
recall an anecdote where I felt like I was ambushed in a meeting in Hank Paulson's office.
He and Ben were there. Tim Geithner was on the phone. They hand me a script that says
the FDIC is going to stand behind all liabilities in the financial system. And I wasn't going
do that. So, we dialed that back. They wouldn't even -- there is an anecdote in my book where
we were at least trying to say, let's ban bonuses. If we take any losses on these bailout
initiatives, then executive bonuses should be banned. And the other regulators wouldn't
even support us on that. So, yes, I did push. I didn't get much help or support. I was kind
of surrounded. We were there by ourselves. Maybe I could have done more. I don't know.
How many times can you run into a brick wall at 90 miles an hour? But we did what we did.
JUDY WOODRUFF: Going forward, Sheila Bair, what is it that you see in the prescriptions
of either President Obama or Gov. Romney that will fix the problem as you see it today?
SHEILA BAIR: Right. Well, both say they want higher capital requirements. And that's good.
But the problem is, we're hearing people talk good games, but actually getting the rules
in place -- we have more capital in the banking system now because the market has demanded
it and because we have had this stress-testing process, which is a discretionary process.
But the rules still allow a lot of leverage. We need to get the rules changed. They both
say they want to do that, but when you gets specifics, well, how much leverage do you
think is appropriate, where would you set the capital requirement, you really don't
hear many details. They both say they want to end too big to fail, thank goodness. Even
Alan Greenspan has said, if they are too big to fail, they are too big. Right? So if they
can't be -- if they can't fail without hurting the rest of us, then they need to be broken
up now. But, again, Dodd-Frank has provisions to empower regulators to do that now. But
will Mr. Obama or Mr. Romney appoint people who are willing to use that authority, who
are committed to ending too big to fail? JUDY WOODRUFF: So, if are you a voter out there
trying to make a decision, how do you make a decision then, based on hearing what you
just said? SHEILA BAIR: Well, that's one of the reasons why I wrote the book. I tried
to break down some of these issues. I don't think this gets changed. The financial services
industry got too big. They got too big as part of our economy. They got too big in their
political influence in Washington. And it is on both sides of the aisle. It is in both
political parties. So unless people educate themselves -- I know people are busy and you
have got all sorts of things to learn about and prepare for. But that is one of the reasons
I wrote the book, to describe some of these simple concepts and simple steps that need
to be taken, and make some accountability with our elected officials to support regulators
and appoint regulators who are willing to do it. JUDY WOODRUFF: Last question. So, are
you optimistic this gets fixed or not? SHEILA BAIR: I am not. I really am not. We heard
-- there was -- thank you to Jim Lehrer. There was a Dodd-Frank question -- I appreciate
that -- at the first debate. The second debate, which was driven by town hall participants,
we didn't hear much. And they're not really talking about it on the campaign stump. And
my fear is, they are both worried about alienating all this political money that comes in from
the financial sector. So, again, I think people have to educate themselves, speak up, get
angry, raise this, or it's not going to get fixed. JUDY WOODRUFF: Sheila Bair, the book
is "Bull By the Horns." And we're going to ask you to stick around and ask you a few
more questions online. SHEILA BAIR: OK. Great. JUDY WOODRUFF: So, our viewers can hear more
of what you have to say. Thank you. SHEILA BAIR: Sounds great. You bet. MARGARET WARNER:
And you can watch more of Judy's conversation online. h!2* gd!2* h!2* gd!2* h!2* gd!2* :p!2*
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