Sheila Bair on the Consequences of ZIRP, Bank Bailouts, and a Post-Geithner Treasury!
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Welcome to Capital Account. Wall Street banks, including Morgan Stanley and Goldman Sachs, are looking to help their foreign customers skirt new US regulations for over-the-counter derivatives. The banks found ways to route trades via non-US affiliates, exploiting the lack of a precise definition for what constitutes a "US person." Wall Street's attempts to circumvent regulations may not come as a surprise, but what is the antidote? We talk to Former FDIC chairwoman Sheila Bair about her experience as a regulator during the financial crisis.
Plus, both the US and the EU have pushed back deadlines to implement the Basel III capital requirements; the Basel III framework more than triples core capital requirements for lenders. Our guest, Sheila Bair, spent much of her career at the FDIC fighting to increase capital requirements, and was critical of the Basel II framework, which let big banks evaluate their assets with their own internal risk models. Bair faced opposition from international regulators as well as the media: in 2006 The Economist wrote about the "Battle over Basel II," and after mentioning Sheila Bair, stated that American supervisors were "luddites." We ask Sheila Bair, author of Bull By the Horns, if there is any way to reform our banking system, which is built on credit and leverage, without causing a recession.
We also ask Sheila Bair about the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), and if anything has materially changed since the passage of this law. Sheila Bair believes that certain things have changed, and does not believe that a bailout remains in the cards. We remain skeptical...
And, we often talk about financial regulations that disproportionately hurt smaller players. Sheila Bair laid out some specific examples in her book from her time in the regulatory trenches. We explain her examples in Today's "Reality Check."
Last but not least, in today's Loose Change, Lauren and Demetri discuss the latest news from Europe, and the revelations that a member of the former Greek Prime Minister's immediate family has found herself named in the now infamous "Lagarde list." George Papandreou's mother is on the list of Greeks with Swiss bank accounts. Her holdings are tied to an account containing more than 500 million euros, according to the Telegraph. Lauren and Demetri discuss the problems with foreign bank accounts in today's "Loose Change."