Well I am relieved. It has been my contention that Sheila Bair is the bull in the china shop. She confiscated Washington Mutual because it might cause a problem for her agency. There is little evidence that WaMu was illiquid or insolvent at the time – and indeed if the losses were only what JP Morgan has assumed then the bond holders (which she wiped out) would have received considerable value – probably par.
I contend she did this based on the narrow and short-dated assumption that it would make a potential headache for her agency (and her agency alone) go away.
The confiscation of WaMu caused the rapid collapse of Wachovia – which she insisted could only be saved with a government guarantee when within a few days she had a hard offer involving no government money.
There is plenty of evidence she made these mistakes all on her own and she should resign.
Press reports indicate that Geithner wants her gone. Geithner is no political hack wanting to get rid of the Republican. He just wants to get rid of the dangerous and irresponsible bull in the china shop.
Some press indications are that Sheila Bair will be hard to remove. She is a statutory appointment after all – and her position will survive a change in government. And if she puts up a fight she will be even more destabilising.
A change in administration is the perfect opportunity for Sheila to resign. Then she can do it without disgrace. But my contention is that every day Sheila is in the position is another day added to the end of the financial crisis. She, more than anyone, makes it clear that intermediate funding in banks is insecure – and fixing that perception is the first and most important thing needed to make this crisis go away.
So Sheila, you are going to be asked to resign anyway. Please make it quick, give your successor time to undo the damage you did and help get this crisis over with.