Sheila Bair on TARP: We Didn’t Take the Right Approach

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-- thank you I'm Nicole let's get to our next guest right now we've been waiting for.

This hour because -- imitates the featured guest of the new book out and it.

-- taken referenced a moment ago she does go after the Treasury Secretary Tim Geithner in the culture of the bailouts and last few years.

There's a look at the book of bull by the horns is what it's called and Sheila Bair is here formerly the head.

The FDIC good to have you.

Q thank you for coming and well again since we references let's start with the Treasury Secretary because to put it mildly.

You differ in how you would have approached the the last few years compared to Tim Geithner -- to go wrong.

Like there was this a fundamental.

Philosophical difference tonight is that repeatedly said I think -- -- nobody thought was right.

But I think his philosophy was if -- bailout the banks like him profitable.

Then the rest just can't take care of itself it was the broader economy is gonna benefit and their interest and that the broader economy's interest -- just to agree different things I think that was a -- fallacy.

Of the approaches that we -- and -- but I still here now that the rationalizations what we've made up money up the bailouts because the banks are proper -- -- you know.

Pace of those profits back to us that the broader point is what's happened to our economy how -- that help our economy we know how the crisis hurt our economy is yes then avail itself just.

-- so a lot of this we're we're looking back and we do have the benefit of some airlines such respected absolutely but if Geithner he's not here to defend himself if he wasn't sure he would point to one thing that you said which is hey listen.

-- -- a lot of this money back in the TARP bailout and we also avoided disaster because after Lehman Brothers crashed that we can September oh wait we thought boy we are really.

In -- right.

Well in 2008 we were dealing with a highly volatile situation and so I think Jim Reid is -- say in the book we didn't have good information so are you instinct was through a lot of money at -- because if you don't do enough if you too much you regret it but if you do you -- -- nothing you could have -- potentially very bad situation is one of the criticisms was paid Lehman wasn't bailed out right.

And well that was my criticisms I.

Just saying people said that we say well you're -- we don't make that quote -- mistake again so we better -- these other guys out avoid disaster but the point is -- 2009 this 2009 -- a stable way that was the time to impose some accountability to impose some pain replaced boards replace managers.

Make the sick institutions -- at least sell their bad assets take their losses take their medicines restructure.

You know as sick bank is just bailed out this is with the Japanese -- biggest -- -- balance sheet.

They don't they -- -- -- vote toxic legacy loans on their balance sheet they don't go out there and make new loans and in take new risks because if at all this and it.

W so stupid assets on their on their books are ready so.

-- it wasn't in retrospect.

-- think that we did not take the right approach I think -- repeated lesson from history.

That we thought -- learned when everybody in the US criticized Japan chair that we just prop them up we has just take a pay.

Because and as we have already established we're looking back and there's the benefit of hindsight -- this is a retrospective look at a crisis and decisions were made quickly at the time but.

Let me take it that week and let's just talk about -- The real came into work that Monday and after the the Lehman weekend as it was called a British -- what's gonna happen.

And Lehman did I guess quote quote fail and then we went -- but there were other events.

That we -- I've always thought.

That you know when.

And when the banks were a lot when the big Wall Street firms are allowed to become bank holding company -- Goldman Sachs Morgan Stanley.

That if that did not happen and correct me if I'm wrong -- that did not happen we really would have had a disaster -- our hands Morgan may have failed and who knows about Goldman.

What do I think you have to differentiate between whether -- insolvent and whether they were having a temporary.

Inability to access Marcus if the weather problems that but the investment banks Goldman and Morgan was that they relied -- -- -- call wholesale funding right there continually going to the market to borrow money to fund themselves.

Commercial banks had insured depositors a stable source of -- so they didn't really have.

That problem in Citi even those commercial banks heavily relied on wholesale fan -- Cadbury had few insured deposits and it taken a lot of -- of high risk.

So that Goldman and Morgan consultancy standpoint there were able to access nongovernment sources of capital.

And the FDIC if we see basic institution that can still -- -- private sources of capital that's a pretty strong indicator to us that they're still together there's -- solvent.

Citi on the other hand the market was closed to them so it makes sense to -- -- -- yesterday Citigroup and bank bailout.

Is that the only one -- well and I think -- you again again it's not we had to do something -- saying that is what we did.

I think -- the -- investment bank sees a liquidity help Citi was insolvent.

Merrill -- was I think -- consolidated several quarters of losses and a lot of leverage a lot of toxic assets.

They of course had been able to commence the eBay to buy them much if it was that was a dramatically out of it into high priced -- and that later on got -- -- into trouble but.

You have a different -- to -- they were insolvent and whether they need -- some temporary help with the liquidity.

OKMR when Martha is because I'm sure some people read this -- -- this book and a simple -- you were there you know you were at the FTSE during this time and if you thought.

All the things that your writing about why weren't you more publicly outspoken against some of the quote bailouts of the things that you I guess when a long way.

Well I think I've always been outspoken about the need to tackle the mortgages which we never -- and I tried to private conversations I find that that that comment criticism a little ironic because I have I have been.

B rated debt time and again we're not be a team player for being public about some of -- stuff but I was says shortly after the turbulence I was certainly very public about not.

Doing something to fix the mortgages.

And the internal discussions I did push back did I respect for the debt guarantee program I I had a counterproposal that would only guarantee 90% of the -- -- whatever -- was at least take.

10%.

That was not something that the other regulators had agreed to in the international community was going for for full full.

Fully and guaranteeing the bondholders right so there was a lot of internal dissension and pushed back which I.

Document in my book but I also I was trying to be part of one government and we were to difficult situation and I tried to be gets closer and -- -- I didn't.

I didn't -- all of that and and I -- -- right to say now that I think that could've spent the bull by the -- is the book we just to run for times and the -- -- and -- -- a little -- here on present today right alive -- scandalous things -- about well I think it needs to be -- it's just amazing to me this is that a problem for a long time it's a flawed -- -- -- -- -- they're still using that we've got a lot of different international groups looking up -- now and nothing much -- seems to -- be getting done.

I think this is very personal emergency.

It's black parade is -- highly influential rate was sort of very.

-- subjective process was having stated little bit less human but it'll be back.

Sheila Bair thank you very good luck with the book a ticket thank you.

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Sheila Bair on TARP: We Didn’t Take the Right Approach

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