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Sheila Bair Not Intimidated By Threats of Financial Meltdown, Awkward Physical Contact

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Sheila Bair continues to be mad that she didn't get to sit at the grown-ups' table during the financial crisis, and she told Joe Nocera all about it in his much-talked-about "exit interview" this weekend. She-Bair is not afraid to bring the awkies regarding her relationship with Hank Paulson: “Except for a 10-second handshake, she never even spoke to Henry Paulson her first year or so in office.”

Wait, what? Sadly there are no more details about this 10-second handshake, but we imagine it got pretty creepy. Hank probably started crisp and confident, but by the five-second mark both hands were clammy and eventually Bair had to clear her throat noisily a couple of times and say “crushing my hand here Hank.”

Now, sure, the Bair didn't like getting snubbed by Timmy and Hank just because her whole agency had to share two computers for most of her tenure. But she has no problem with elitism per se, and doesn't think government money should be given to just any bunch of losers:

“Let’s face it,” she said. “Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail. So, yes, I was amazed when they saved it. I couldn’t believe it. When they told me about it, I said: ‘Guess what: Investment banks fail.’ ”

And second-tier investment banks should fail in second-tier ways, like crashing a Segway, or throwing up from drinking peach schnapps, or dying of an allergic reaction after a little light bestiality.

There's lots more in the fascinating interview, which depicts Bair as principled, no-nonsense, and proved right by events. As Nocera notes Bair has long been viewed as "difficult," her reputation dragged down by Andrew Ross Sorkin's reports that Tim Geithner and Hank Paulson viewed her "as a showboat, a media grandstander, a politician in a regulator's position whose only concern was to protect the FDIC, not the entire system."

But Bair's market-discipline approach, and her view that bondholders should suffer for investing in insolvent issuers, are getting more respect these days. And with the Bair's book dropping in 2012, a little love from Joe Nocera seems well timed to help her in her next act.

Sheila Bair’s Exit Interview [NYT]


Banks Prove That They Are Not Too Big To Fail By Saying "We Can Fail" On A Piece Of Paper, Moving On

One way you could spend this slow week is reading the "living wills" submitted by a bunch of banks telling regulators how to wind them up if they go under. Don't, though: they're about the most boring and least informative things imaginable and I am angry that I read them.* Here for instance is how JPMorgan would wind itself up if left to its own devices**: (1) It would just file for bankruptcy and stiff its non-deposit creditors (at the holding company and then, if necessary, at the bank). (2) If after stiffing its non-deposit creditors it didn't have enough money to pay its depositors it would sell its highly attractive businesses in a competitive sale to willing buyers who would pay top dollar. This seems wrong, no? And not just in the sense of "in my opinion that would be sort of difficult, what with people freaking out about JPMorgan going bankrupt and its highly attractive businesses having landing it in, um, bankruptcy." It's wrong in the sense that it's the opposite of having a plan for dealing with banks being "too big to fail": it's premised on an assumption that the bank is not too big to fail. If JPMorgan runs into trouble that it can't get out of without taxpayer support, it'll just file for bankruptcy like anybody else. Depositors will be repaid (if they're under FDIC limits); non-depositor creditors will be screwed just like they would be on a failure of Second Community Bank of Kenosha.