The most interesting question, I thought, was from a woman who asked why Bair acted competently and effectively in the crisis when the rest of the Bush financial leadership did not. Bair didn’t really answer, but a good answer was implicit in what else she said and what was said (by former ISOM dean Tom O’Brien) — she was looking out for the public interest and that of the depositors, rather than that of the institutions she was regulating. O’Brien stressed her actions on behalf of individuals, including small depositors and even foreigners resident in the US, whom she helped to send their money back home more easily. She clearly took a long-term view of the FDIC in her remarks — it made loans to private companies during the worst of the credit crunch, for example, and she was proud that these loans actually made money “for the taxpayers”.
She still identified herself as a Republican, though she was critical of the Bush administration (“because the crisis intervention was done quickly, there wasn’t as much accountability as there should have been” [my paraphrase]) and she was fully supportive of administration policy. I hadn’t realized that the FDIC is not part of the Treasury Department but an independent agency, so that Obama did not have the option of replacing her when he “kept her on” this spring. (I have no idea whether she would have resigned if asked. She was under some consideration for the Treasury job, at least at the rumor level.) The five-member FDIC board can have no more than three members of each party, actually, so having an ally who is a Republican is actually better for Obama as he appoints new members. Anyway, she describes herself as part of the team whatever her legal status.
The web site fdic.gov is worth looking up — there’s a clear emphasis on reassuring ordinary investors about their deposits, particular if their bank has actually failed as about 30 (mostly small) banks have done so far this year. Bair has done a round of talk shows and PSA’s lately to stress the stability of the system.
Overall, I was very impressed — Ms. Bair seems to have been one of the few grownups in charge in the previous administration, and is providing sensible leadership now.
Geitner described his plan here.
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p>Economists reacted here.
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p>I wonder: since the FDIC only has about $45 billion in its insurance fund, which presumably is the bulk of its assets, how can it underwrite $500 billion in loans without turning itself into, well, a government version of AIG? Presumably, the Fed will also underwrite the loans. Did she say how the responsibilities for underwriting will be divided between them?
In case of massive defaults, that is. Since the FDIC is backed by the “full faith and credit of the United States”, it can draw on the treasury when it needs to. She said, however, that she expected to turn a profit for the FDIC on these loans overall. I don’t recall any numbers on the division between responsibilities.
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In addition to the full faith and credit of the US Treasury, the FDIC has the ability to raise funds from the banks themselves. This is an insurance fund and as such raises “premiums” or contributions from banks are reflective of the need to cover the fund. These payments are based on deposits, so larger banks pay more, smaller banks less. So far, that is how all the FDIC money has been raised.
Doesn’t always work out that way.
I might have done, but I hadn’t tracked down and read the story beforehand so I had only a vague memory to go on. And the memory I had, based on the headline, was a little worse than the reality — it was Congress that decided not to collect the fees, over Bair’s objections, and it was unwise in retrospect but not insane because the fund was in no apparent danger of running short at the time. Bair did mention that she was close to an agreement on how much of the newly reimposed fees would be charged to large and small banks.
Pension insurer shifted to stocks
Concern increases as losses mount; Failing plans could overwhelm agency
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p>By Michael Kranish
Globe Staff / March 30, 2009
Email| Print| Single Page| Yahoo! Buzz| ShareThisText size – + WASHINGTON – Just months before the start of last year’s stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.
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p>All that talk a few weeks ago that FDIC was running out of $$$$ was all BS? Riiiiiiight.
when you elect an idiot. Dubya’s man! Millard got his butt kicked out when Obama took office. Who knew, if you’re a pension insurance company it’s bad to invest in the same manner as the pension plans themselves.
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p>What could go wrong?
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p>So Republicans couldn’t privatize social security (ever wonder how much worse of a place Republicans would of left us if they screwed that up too?) Bush didn’t have the mojo to pull that off. Instead he brought in Millard to completely screw the PBGC.