Sheila Bair is Incompetent

The Queen/Jester of the FDIC has launched her latest act of idiocy and economic immolation. She is attempting to impose an emergency assessment on the country’s banks in the range of $25 billion and to permanently increase the bank’s annual insurance fees. This proposal is ridiculous, counter-productive and defies any understanding of the current economic crises, how the banking industry operates or the well-defined role of the FDIC. The only justification for levying this charge is to preserve and perpetuate Sheila’s ego and influence as a “player” in housing policy matters.

Sheila Bair's Horrifying Visage

Sheila has dismissed both the reaction to her announcement (a near-revolt by the banking industry) and a proposal to excuse the fees for smaller banks. Bair says that the FDIC does not discriminate based on the size of the bank, large or small. How progressive.

It is absurd that Sheila would sound an alarm that the FDIC is now insolvent. The government entity has been staring in the face of insolvency for years. This reality was predictable and inevitable. A wave of bank failures has been steadily building and will quickly overwhelm any emergency charges she foolishly imposes on our banking system.

In keeping with Sheila’s twisted perspective on the world, this emergency charge would directly punish good banks to prop up the bad. The charge would punish small banks in support of the few large bank failures which have consumed the majority of the FDIC’s insurance funds. Her confiscatory policy steals assets from banks in the 40 states without serious foreclosure issues to subsidize a small number of bad players in the other 10.

The FDIC, like Fannie Mae and Freddie Mac (and now most of the financial sector) are underwritten and implicitly guaranteed by the Federal Government. There is not a chance in hell that the Government would allow one cent of qualified bank deposits to go uninsured regardless of the FDIC’s woeful financial condition. The FDIC will be bailed out irrespective the status of its insurance fund.

Furthermore, the hypocrisy of the proposal is mind boggling. The Government consistently argues that banks should be lending more. Recipients of bail-out funds have been lambasted for not increasing lending despite the fact that this was not the intent of the TARP funds. This may come as a surprise to Sheila, but banks lend money based on a multiple of their deposits and shareholder equity. By confiscating $25 billion the FDIC has effectively reduced the lending capacity of banks by several hundred billion dollars. Brilliant!

The parallel isn’t perfect but imagine hurricane victims being assessed ten years of insurance premiums immediately after a storm hits. People and banks pay insurance premiums to receive the benefits of that insurance during the crisis. When the crisis actually hits the victims shouldn’t be robbed at gun point for their own benefit. In fact, there is no worse time to confiscate their assets.

As of today there are various proposals to change Sheila’s idiotic proposal and reduce or remove this burden on the banking system. Sadly, the amendments being discussed by Congress do not change the fact that Sheila Bair, the head of the FDIC, is dangerously incompetent. Additionally, should Congress provide the FDIC with a larger credit-line (the current proposal would provide the FDIC with a $500 billion line of credit) Sheila would be given expanded influence which she would inevitably use to further damage the economy and for personal self-aggrandizement.

The FDIC, the banking system and the U.S. economy deserves better than Shelia Bair.