Friday, March 20, 2009

In Early Running to Replace Geithner Is His Arch Enemy Sheila Bair

The speculation on parts of Wall Street has gone beyond the departure possibility of Tim Geithner. NyPo is now speculating that FDIC chairman Sheila Bair may succeed him at Treasury.

Geithner and Bair have been arch enemies for years. According to NyPo:

People familiar with the matter said that Bair and Geithner's feud has gotten so heated that at one point last year, before Geithner was confirmed as Treasury secretary, he suggested she be ousted as FDIC chairman.
Bair as successor would avoid one hassle Obama has had, namely, his problem of getting his nominees through the vetting process. Since she is FDIC chairman, she has already been vetted.

Bair is no friend of the sanctity of contracts. She has been ahead of the pack in promoting measures designed to stop foreclosures and modify mortgages. Further, she is not afraid to play the role of fascist regulator to the hilt.

Don't forget, she forced Wachovia to sell itself in three days, in an attempt to give Citicorp, basically, the bank as a gift. With a quick sale, other potential bidders had little time to complete due diligence. She further attempted to shovel government guarantees into the deal, which, for all practical purposes, was an attempt to provide Citi with a jewel (the bank) and a hidden source of cash for Citi. The hidden source of cash came about as a result of an FDIC guarantee that on a pool of $312 billion of Wachovia assets Citigroup could not lose more than $42 billion.

As Bronte Capital explains:
..we need to understand the significance of that guarantee. The significance is as follows: Once Citi owns $312 billion in assets on which they can only lose $42 billion the remaining pool must be worth $270 billion. That $270 billion is guaranteed by the US Government – as the FDIC is a full faith and credit organisation. Citigroup can put that $270 billion (plus the $42 billion in non-guaranteed assets) in a pool and repo it – and as Treasuries yield very little they will wind up paying well under a percent of interest. The Sheila Bair decision was equivalent to a cash injection into Citigroup of 270 billion because the repo-market will turn government guaranteed loans into cash.
How big of a gift was Bair attempting to pass on to Citi, even beyond the guarantee? Wells Fargo sniffing that this was a gift to Citi, went in and bid $15.4 billion for Wachovia AND said they didn't need the guarantee of $270 billion on Wachovia's assets.

Bair, at the time, issued a statement saying her agency "stands behind its previously announced agreement with Citigroup," despite the clear superiority of the Wells Fargo real bid versus the Bair muscled attempted gift to Citi.

In short, Bair is too slick and out of control for me. The clear indication from her attempted forcing of Wachovia into the hands of Citi is that the financial system to her is like playing a game of Monopoly where she makes all the rules and can move pieces anywhere she likes. Scary. I'd rather have the over is head Geithner in charge

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