This is why Sheila Bair blames Bernanke for the credit crisis

Yesterday, Sheila Bair wrote an unusual Op-Ed in the Washington Post in that it was penned just after departing a high-ranking government position and it was also highly critical of the government’s policy responses. In the US, because outgoing regulatory officials are very likely to move into cushy private industry jobs of the industries they regulated, they are loath to make these kinds of pro-regulatory remarks.

Sheila Bair did not name names. But her exit interview from just two days earlier with Joe Nocera does:

  • “As Paulson, Geithner and the Federal Reserve chairman, Ben Bernanke, raced to bail out banks and companies like A.I.G., Bair resisted, fearing that they were being overly generous by putting the interests of bondholders over those of taxpayers.”
  • “Yet only the F.D.I.C. seemed to take this possibility seriously — and to fear the consequences. Paulson and Bernanke, for their parts, maintained that the damage from the bursting of the subprime bubble would be “contained,” as they liked to put it.”

The obvious conclusion must be that Sheila Bair blames Geithner, Paulson and Bernanke for the credit crisis.

Below is a collection of video clips of Ben Bernanke in his own words demonstrating why.


  1. Haegon Lee says

    When the financial crisis 2.0 emerges (very soon), the public sentiment against Bernanke will be extremely negative.

    Also, the audacious mendacity of the Obama presidency will result in a landslide loss for his re-election bid.

    Social mood is sour and the possibility of Squid Face, Dimon, and other CEOs of TBTFs will result in their arrest, trials and jailings. This will happen once the markets plunge below the 2009 lows and public outcry for justice will not be ignored no more.

    When people lose everything they have and have no more to lose, they lose it! Look at Greece, Spain, Portugal and Italy….coming to USA.

  2. old redeye says

    You are one of my fave bloggers, Edward, but I can’t agree with you here. I simply don’t understand the adulation for Ms. Bair. And the “I saw it coming/I disagreed with them” smacks of revisionist history in advance of a run for political office.

    Bair designed and implemented the disastrous Mod-in-a-Box program, was quoted extensively claiming negative equity plays little role in default and engaged in a backdoor bailout of failed companies by guaranteeing debt at below market rates with hundreds of billions in taxpayer dollars.

    She was not a soldier. She was not bound to follow orders. She could have resigned in protest at any time during this administration or the last. The fact that she did not makes her just as much a crony capitalist as those she now criticizes.

    1. Edward Harrison says

      See, the thing is this post isn’t about Sheila Bair at all. It’s about Ben Bernanke. So I’m not praising Bair but criticizing Bernanke. That said, I don’t think saying resign or you’re a crony capitalist is a fair standard to use.

      I would say this. Bair is not perfect. She made her fair share of mistakes. But, on the whole, she is the most faithful regulator in Washington we have had during this crisis – and that is to be commended given the immense pressure she must have been under to toe the line. I think you underestimate the amount of pressure that is applied in this way.

      On Bernanke, I actually like him a LOT more than Greenspan. He speaks plain English where Greenspan did not and he is less ideological than Greenspan. I think he has a hard job politically and has started to say things that shade in a direction that is at odds with his academic writings however. But, again, the pressure for him to both do anything or to do nothing is immense.

      So no adulation here. Bair: Pretty good. Bernanke: fair. Paulson: Poor. Greenspan, Geithner: Horrible.

  3. fresno dan says

    First and foremost, I don’t actually know if Bernanke, Paulson, and Geithner are as bad as I suspect. Is the US government entirely incompetent? On the other hand, could the great depression have been managed with less severe consequences?

    I would say that it appears to me that the US policy is that no bondholder or bank should lose a dime. And that there is infinite taxpayer largess. I disagree with both assumptions. It is a profit and LOSS system. But apparently treasury/FED thinks that should failures/losses would be a disaster.
    But my question would be: OK, I accept your premise. NOW, how did it come to this?

    1. Edward Harrison says

      This is all about regulatory capture. The revolving door between Wall Street and the regulators makes banks and agencies staffed with the same people. Moreover, these are people who believe with conviction in as little regulation as possible. It shows a corruption of the most extreme type. And when all is said and done, the pendulum will swing back in the other direction – perhaps violently, as it did during the Great Depression.

  4. Darryl says

    How does a person who was in the mix of things a few months ago now place blame. If I am not mistaken Bair was controlling the Bank deals on behalf of the treasury/fed, i.e. WAMU, Bear Stearns, etc. Is she now saying that she was a helpless pawn in all the events of her tenure.

  5. Edward Harrison says

    If you want perfection, go live in Utopia. In the real world, people have turf battles and ideological blind spots that it is difficult to counteract. It’s preposterous to think Sheila Bair, who was head of what was considered a second-tier government agency compared to the Fed and the Treasury, could muscle her way through against the likes of Greenspan, Bernanke, Paulson, Summers and Geithner. And that’s assuming the Presidents actually wanted to do things her way – which they did not. Are you kidding me?

    Remember, even Volcker was silenced by Geithner and Summers.

    On WaMu, John Hempton thinks she was too hasty:

    On Citi and Wachovia, i think she never should have signed on. But Citi was failing and the pressure to do it was immense:

    On the free money to PE firms in bank resolutions, I was not happy:

    Bottom line, I have watched this unfold in great detail. Sheila Bair made mistakes. I did not agree with all of her decisions. But Bair had the right attitude as she was focused on actual regulation whereas the other regulators were anti-Regulators. I think Sheila Bair has done a much better job than any other regulator in the crisis. My notes: Bair: Pretty good. Bernanke: fair. Paulson: Poor. Greenspan, Geithner: Horrible.

  6. Jeff says

    Edward, my friend, you are in complete denial. Sheila Blair is a fraud, like everything that has to do with the financial and political system these days. If she felt so strongly about her case then, she should have quit. Since she did not, she probably did not feel that strongly about the events, she is compromised and she is an accessory to the debacles to come. If she feels so strongly about her case now, well, she should by all means name names and cite concrete examples, instead of couching her case in vague psychological terms. Are we really to believe that short-termism is a new phenomenon, if it is hard-wired in us like she claims? Her op-ed is nothing more than her trying now to look like she tried, and to wash her hands of the consequences. It shows no real thinking about the source of the crisis beyond the current “new economic thinking” fad. It’s pathetic.

  7. Susan Minerly says

    I agree with you Sheila Bair tried to do the best she could before being shut down by Wall Street and our regulators.

    I would like to invite your followers to join the petition found at creating a six billion dollar monthly stimulus that doesn’t cost the taxpayers one penny accomplished by enforcing existing laws, the precedent set and the principles of capitalism, not socialism.

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