Daily Flog: Wall Street down the drain; White House plumber summoned


As Wall Street’s potholes widen into sinkholes, is it too late to replace Henry Paulson with Sheila Bair?

Bair, a Bush appointee who chairs the Federal Deposit Insurance Corp., has blasted the government for bailing out institutions instead of Americans in danger of losing their homes.

Although she doesn’t say so, she’s in effect emphasizing social welfare over corporate welfare, saying in a Wall Street Journal interview:

“Why there’s been such a political focus on making sure we’re not unduly helping borrowers but then we’re providing all this massive assistance at the institutional level, I don’t understand it. It’s been a frustration for me.”

Especially when Wall Street’s going down the drain, and John McCain‘s desperate response is to summon Joe the Plumber for a hasty fix to protect the GOP candidate’s plot, instead of calling in a coordinated crew to dig out the nasty roots of a problem that dooms other homes than his.

See the WSJ story, “FDIC Chief Raps Rescue for Helping Banks Over Homeowners,” for more from Bair, a major official who unfortunately isn’t in charge of the bailout. Reporter Damian Paletta notes:

Ms. Bair, who was nominated by the White House and confirmed by the Senate in 2006, has frequently said government and industry efforts to prevent foreclosures aren’t effective enough. She has long defended her focus on consumer protection as an important role for the FDIC, which is charged with protecting bank deposits.

Her comments Wednesday came amid growing tensions with key figures in resolving the financial crisis, notably Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, according to people familiar with the matter. . . .

“I support all the measures; I’ve been a part of all the measures that have been taken,” she said. “But we’re attacking it at the institution level as opposed to the borrower level, and it’s the borrowers defaulting. That is what’s causing the distress at the institution level. So why not tackle the borrower problem?”

Like me, Bair spent years in progressive Lawrence, Kansas; both her undergrad and law degrees are from KU. So it’s not surprising that Bair has a social conscience, no matter what her party affiliation is.

Even conservative Larry Kudlow admires her work. He wrote late last month in the National Review (“Our Bair Necessity: The FDIC chairman is the bank system’s ultimate backstop”) before Paulson started dominating the news by spreading even more wealth to bankers:

Hank Paulson may not be the most powerful financial person in the country right now. That honor goes to Sheila Bair, the chairman of the FDIC.

In recent weeks, Ms. Bair has held the banking system together, coordinating smooth takeovers of distressed banks in deals run and controlled by her agency. I wouldn’t exactly say she’s flying under the radar screen since these bank takeovers are front-page news. But without holding the center-stage attention that Paulson has, she has seamlessly closed and reopened IndyMac, Washington Mutual, and Wachovia.

Over in London, the Economist notes that Bair — who is practically invisible to the general public — was recently ranked by Forbes as the world’s second-most-powerful woman (behind Germany’s Angela Merkel) and adds:

Ms Bair is leading the government’s response to the financial crisis and using the FDIC’s powers to help reshape the banking industry. And she has won plaudits for her actions so far from bankers, investors and fellow regulators. . . . All this will prove testing. But so far Ms Bair has had a good crisis.

If only she were as powerful as Paulson in setting the overall bailout policy. Anyway, it appears as if a rift — a good rift — is widening between her and the Paulson approach of throwing money at reckless bankers.

Others (‘Daily Flog: . . . Kucinich irrelevant but his bailout plan isn’t,’ Press Clips, October 1) have also suggested that trying to prop up mortgages — which, after all, prop up the ailing mortgage securities issued on Wall Street — would ease the Wall Street crisis more than directly bailing out bankers.

But Paulson’s a banker, so what do you expect?

While we try to remain standing in Manhattan’s fault zone . . .


Washington Post: ‘Worldwide Financial Crisis Largely Bypasses Canada: Tight Regulations, Strict Lending Practices Encourage Optimism’

N.Y. Daily News: ‘Tryst with pre-teens wasn’t pol’s first’

IssueLab: ‘Voting Rights and Free Elections in the U.S.’

Politico: ‘Experts warn of Nov. 4 voting meltdowns’

BBC: ‘McCain and Obama in tense final debate’

Wall Street Journal: ‘FDIC Chief Raps Rescue for Helping Banks Over Homeowners’

L.A. Times: ‘New stimulus package might be next in federal effort to gird economy: Sinking retail sales add urgency to calls for a 2nd round of stimulus’

Washington Post: ‘A Hard-Hitting Final Round’

L.A. Times: ‘Does this explain muskrat love?’

BBC: ‘High food costs “a global burden” ‘

N.Y. Daily News: ‘Dad’s fists killed baby boy, cops say’

N.Y. Times: ‘A Somali Influx Unsettles Latino Meatpackers’

Washington Post: ‘Stocks Sink as Gloom Seizes Wall St.: Bernanke Forecasts Prolonged Economic Turmoil; Dow Plunges 7.9 Percent’

Washington Post: ‘European, Asian Markets Tumble; Nikkei Falls 11 Percent’

AP: ‘Omar grows into Category 3 hurricane in Caribbean’

Washington Post: ‘As Budgets Tighten, More People Decide Medical Care Can Wait’

N.Y. Times: ‘Infant Deaths Drop in U.S., but Rate Is Still High’

Big surprise that the rate’s still higher than it is in many other industrialized countries. Where’s the Times been? See this Press Clips item, ‘Whitewashing the bad econ news’ (August 26, 2008), for details.

N.Y. Daily News: ‘Financial crisis could take bite out of sports’ bottom line’


Washington Post: ‘Fear Again Takes Over the Markets’


CBS: ‘CBS Poll: Obama Has Edge In Final Debate’


New York: Times vs. Journal on Bailout Drama’