Sheila Bair recently announced her intention to bail-out millions of homeowners facing foreclosure in direct defiance of the President and the US Treasury Secretary. Ms. Bair appears interested in “saving” America from foreclosures by using her influence over the FDIC. The people Ms. Bair is intent upon saving can not afford to make payments on the mortgages to which they willingly subscribed and own homes worth less than the balance of their loans.
Ms. Bair’s proposal is misguided, creates moral hazard, delays inevitable foreclosures, slows down the market clearing mechanism, will waste huge sums of taxpayer money, and will lengthen and potentially deepen an economic downturn which will not resolve itself until the housing market finds a sustainable bottom.
According to the FDIC’s web site Ms. Bair is a member of the Center for Responsible Lending. This is ironic in that Ms. Bair seems to be on the verge of the administering one of the least responsible lending efforts in the history of the United States. She is also a member of the Society of Children's Book Writers and Illustrators. This makes more sense as the idea of forestalling inevitable foreclosures with low-interest rate government loans is a proposal that could only work in a fairy tale.
As research for this article I read excerpts from Ms. Bair’s first book titled “Rock, Brock and the Savings Shock”. I realize that this is a children’s book and maybe I am not qualified to offer a review, but I offer two insights. Ms. Bair does not have a talent for rhyming, even at the second grade reading level. Secondly, Ms. Bair is intent on ignoring the advice she provides to children about the merits of personal responsibility and the benefit of saving one’s money.
Ms. Bair has recently made it her life’s work to reward irresponsible people who didn’t save enough money, borrowed too much money and bought too much house. Then again Ms. Bair ultimately rewards irresponsibility and promotes moral hazard in her children’s book as Brock “the responsible one” puts the money he saved into a joint account that he shares with his brother Rock “the squanderer”. The lesson of the book seems to be that it is a good idea to save money, but if you prefer not to someone who did will always bail you out.
I give the book one star but recognize that in a socialist educational curriculum it might easily merit three.
Maybe in the book’s sequel Brock, the responsible taxpayer, will have his savings confiscated from him by the government so that Rock, who bought a condo with an option ARM, can get bailed out by the FDIC.
Ms. Bair is obviously a smart and competent person. And it may be the case that she is in fact motivated by a genuine desire to assist people in need. It is possible that it just appears that she is pursuing politically expedient, self-promotional policies to the detriment of taxpayers and the economy.
Either way, Ms. Bair appears intent on becoming the face of "The Next Government Created Housing Disaster”. (see article of same name posted 11/5/08)
Ms. Bair is committed to:
- Exposing taxpayers to massive foreclosure related losses
- Delaying inevitable foreclosures
- Short-circuiting the market clearing and price finding function necessary to rationalize the housing industry
- Lengthening and deepening the housing and economic downturn
- Burning through the FDIC’s resources and necessitating a government bail-out of the banking insurance fund
It appears that Ms. Bair may have a future in politics. Unfortunately, what may prove to be expedient for her career will be a disaster for taxpayers and the economy. On the bright side, future generations of impressionable, young children may be spared the horrors of Ms. Bair's burgeoning career as an inspirational writer.
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