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Sheila Bair is One Tough Cookie

Emails between the Office of Thrift Supervision and the FDIC over the issue of who can do what with regards to Washington Mutual in 2008 are particularly fierce. Carl Levin, chairman of the subcommittee investigating the collapse of WaMu, called it a "turf battle."

At the Senate hearing today, John Reich, former director of OTS, explained it this way: "Rome was burning" and "Blood pressure was running high." Levin said: "I don't see your blood pressure getting up over a bank that was engaged in dangerous practices."

From the WaMu Exhibits:

"I cannot believe the continuing audacity ofthis woman." - Email from OTS Executive Direc!or John Reich to OTS senior official Scott Polakoff (referring to FDIC Chair Sheila Bair), 9/10108, Polakoff

----- Original Message -----
From: ""Bair, Sheila C."" []
Sent: 08/06/200805:46 PM AST
To: Donald Kohn
Subject: Fw: W

This is pretty over the top

-----Original Message-----
From: Reich, John M
To: Bair, Sheila C.
Sent: Wed Aug 06 17:32:482008
Subject: Re: W

Dear Sheila, You really know how to stir up a colleague's vacation.

I do not under any circumstances want to discuss this on Friday's conference call, in which I mayor may not be able to participate, depending on cell phone service availability on the cruise ship location.

Instead, I want to have a one on one meeting with Ben Bernanke prior to any such discussion - as early next week as possible following my return to the office. Also, I mayor may not choose to have a similar meeting with Secretary Paulson.

I should not have to remind you the FDIC has no role until the PFR (i.e. the OTS) rules on solvency and the PFR utilizes PCA.

You personally, and the FDIC as an agency, would likely create added instability if you pursue what I strongly believe would be a precipitous and unprecedented action. And ifit occurs without my consent, I will not sit quietly by and observe - there would be a public reaction. Put yourself in the PFR's shoes in this situation. We have our responsibilities, including the right of primary supervisory determination of this institution's condition, and until Congress changes the statutes under which we operate, our responsibilities as the PFR are not to be simply tendered to the FDIC in a down economic cycle.

It seems as though the FDIC is behaving as some sort of super-regulator - which you
and it are not. I also believe there could be a high potential for FDIC actions of the type you are contemplating to calIse irreparable harm to Wamu if, at any point in the near future, Wamu wishes to actualy seek a buyer. The potential harm could stem from the fact that any such potential buyer may have been allready been contacted by the FDIC.
If in fact any meetings or discussions have already taken place by the FDIC with either JPMC, Wells Fargo, or any other entity, in any capacity in which WaMu was even mentioned, I would like to see a copy of the signed confidentiality agreement signed by the bank - required in any resolution scenario before an institution is told the name of the failing bank.

This is an OTS regulated institution, not an FDIC regulated institution. We make any decision on solvency, not the FDIC, and I have staff equally as competent as staff at the FDIC, whom I know well.

The FDIC can do whatever internal contingency planning it wishes, but should in no way go outside the FDIC. This is a 3-rated institution. Are you also trying to find buyers for Citi, Wachovia, Nat City and others?

Finally, ifWamu were to learn ofthe FDIC's actions, there may well be a question as to whether these actions may constitute a disclosable event. That, in and of itself, is a reason not to proceed with this approach for a publicly traded institution. The government should not be in the business of arranging mergers - particularly before they are necessary, and we are not at that point in WaMu's situation.

I will attempt to be on the Friday conference call, and I am going to assume this notion is not going to be raised.


----- Original Message -----
From: Bair, Sheila C.
To: Reich, John M Cc: Murton, Arthur J. ; Polakoff, Scott M
Sent: Wed Aug
Subject: W

Dear John,

I'd like to further discuss contingency planning for W during the calion Friday. Art talked with Scott about making some discrete inquiries to determine whether there are institutions which would be willing to acquire it on a whole bank basis if we had to do an emergency closing, and on what terms. I understand you have strong objections to our doing so, so I'd like to talk this through. My interest is in assuring that IF we have to market it on an emergency basis, there is multiple bidder interest.
In any event, both the FDIC and the FRB agree that there needs to be a contingency plan in place, so let's talk this through on Friday. I'd really like to develop a plan everyone is comfortable with.