Bull by the Horns

by Sheila Bair

  At the end of the day, the decision came down to confidence—my confidence in our people, our process, our mission, and our financial resources to form a convincing case to 60 Minutes and the American public that we could and would protect them. So I authorized the 60 Minutes coverage. I will tell you, I’ve never been as proud of our people as I was when watching them on CBS News the night of March 8, 2009, as the show demonstrated how they had calmly, confidently, and professionally closed Heritage Community Bank in Illinois on February 27, and transferred ownership to MB Financial, another Illinois lender.

  Our team was led by FDIC veterans Cheryl Bates and Arthur Cooke in a closing we code-named Operation Happy. (In the interest of guarding against inadvertent leaks of the names of banks scheduled to close, all of them were referred to by code names.) Heritage was a forty-year-old, locally run bank that had made disastrous speculative loans on real estate. It was a relatively small bank, with 12,000 deposit accounts and about $200 million in deposits. Pamela Farwig, Jim Wigand’s right hand, who oversaw our (now weekly) auctions on failed banks, had been able to draw several bids on Heritage. The winner, MB Financial, was committed to serving that area and, for a time at least, would keep all of its branches and nonmanagement employees. We had also let the 60 Minutes crew observe our auction team and interview its members about our bidding process. We wanted to demystify our operations as much as possible.

  What about the panicked depositors I had been worried about? Well, a couple did show up, but they turned out to be a blessing in disguise. Early Saturday morning, as Heritage reopened under its new ownership, Jim Hess and his wife, Audrey, came to the bank with an empty suitcase, ready to withdraw all of their money. Another FDIC veteran, Rickey McCullough, had been stationed outside the front door at Heritage. His job was to greet bank customers and answer their questions. “Can I help you sir?” he asked Mr. Hess. “I just don’t care anymore” was Mr. Hess’s response as he hurried into the bank’s lobby with his wife. Rickey was alarmed and followed them in. “Please, can I help explain things?” he asked of the clearly distressed couple.

  As Rickey explained our deposit rules and the fact that they were fully protected, the Hesses started to relax and understand that the bank failure had no practical impact on them. They left the bank without withdrawing their money. The 60 Minutes crew filmed them leaving the bank, with a still empty suitcase in hand and singing the praises of the FDIC.

  Scenes like this were playing out each week throughout the country as hundreds of smaller banks failed. Frightened people were reassured by our competent and professional staff. We protected hundreds of billions of dollars’ worth of insured deposits. No one lost a penny, and no one had to wait more than one business day to access his or her funds.

  Transparency generally served us well in dealing with the media. I tried to accommodate all requests for interviews, and under my direction our press office tried to respond openly and in detail to requests for information. The only exception was requests that would violate our rules involving confidentiality of the supervisory process or employees’ privacy. That had not been the culture when I arrived at the agency. Indeed, the past leadership of our public affairs office had had a somewhat antagonistic attitude toward the press. Just a few months into office, I was completely blindsided by a San Diego Union-Tribune editorial telling me to “take a break260 from writing children’s books” and ask the FDIC media staff to “do their jobs.” As it turned out, the Union-Tribune had been trying to get information on an old, 1993 transaction between a member of Congress and the FDIC during the savings and loan cleanup. For some reason, it had become an issue in his reelection campaign. The Tribune reporter was clearly out of line, but instead of trying to deal with him, our press office simply did not return the phone call.

  Many government press offices follow the same policy: don’t deal with hostile reporters. There were a few instances when the reporters we dealt with had such an overwhelming bias that I decided it was best not to talk with them. But for the most part, full engagement was our policy. Andrew, one of the first people I hired when I assumed the FDIC chairmanship, fully shared my philosophy. And if we felt that that a reporter was not presenting a balanced story, we were not afraid to escalate the issue to their editors or take them on publicly.

  I gave reporters lots of access, but I also didn’t hesitate to give them a piece of my mind when I thought they were being unfair to the agency. I will never forget a Wall Street Journal editorial261 that appeared on September 1, 2009, saying that we were running out of money and that we should give up the ghost and borrow from Treasury instead of assessing higher premiums from banks. It was Labor Day weekend, and I was in Amherst with my family, trying to spend a few quality days with them and enjoy some bike riding through western Massachusetts’ scenic countryside. I called Andrew and asked him to schedule a phone conversation for me with Paul Gigot, the Journal’s legendary senior editor, who oversaw the Review & Outlook section, where all of the editors’ columns appeared. Unfortunately, the only time Paul was available was right in the middle of a bike ride that I had committed to take with my husband. Scott and I arranged our ride so that we could stop at a used-book shop, Montague Bookmill, located in a 150-year-old grist mill on the Sawmill River, at the appointed time so that I could make my call. Sitting outside the bookstore at a rusty wrought-iron table canopied with a faded green vinyl umbrella, I called Paul on my cell. I wondered how seriously he would have taken the call if he had known I was wearing biking shorts and a sweat-stained T-shirt, having just biked twenty miles in the hilly Massachusetts countryside.

  Gigot was congenial—as I always found him to be, notwithstanding the bite he could take out of your hide with a critical column. I sometimes disagree with the Wall Street Journal editorial board, but I always read its opinion pieces because if nothing else the arguments are cogent, forceful, and extremely well written. But here, I thought, The Wall Street Journal was way off base. As defenders of the free enterprise system, it should support our efforts to make sure that the industry funded the costs of bank failures. The banks, not the taxpayers, were responsible for funding the FDIC, and letting them off the hook would simply reward some of the behaviors that had fed the crisis. Our analysis showed that increased assessments would not unduly stress the industry. If we inflicted a little cost and pain, the banks and their trade groups might think more carefully the next time they were tempted to resist our efforts to crack down on bad lending practices or build up our reserves when the industry was healthy.

  I started off slowly with those arguments, but I believed very strongly in our position and also that ours was the right position from a market-based perspective. As I kept talking, I picked up speed and volume, and when he tried to interject a question or comment, I batted him down and just kept going. It wasn’t one of my prouder moments; we had good arguments, and I should have been a bit more dispassionate. I violated my own first commandment for women professionals: never get emotional. But fortunately for me, Gigot took it in good humor and agreed to talk with me if the Journal would be writing future columns on the FDIC to make sure it understood our perspective. True to his word, after that, the columnists would contact us when they were writing FDIC-oriented pieces. Sometimes we agreed with them, sometimes we didn’t, but we enjoyed a good relationship with them after that conversation.

  With Paul Gigot, I was dealing with a mature, seasoned columnist who was willing to listen to competing viewpoints. My “assertiveness,” however, was not always so well received. A good example was when I vociferously complained about the column written by Andrew Ross Sorkin on the Public-Private Investment Program (PPIP), discussed in chapter 14, when he savaged the FDIC as an unsophisticated agency that should keep to the “simple job” of insuring deposits, while comparing me to the guy who had run AIG into the ground.

  I probably paid a price for those complaints. A few years later, in his lengthy tome about the financial crisis, Too Big to Fail, Sorkin agai
n painted me in a very unflattering and inaccurate way. Though he may be plugged in to Wall Street, he had no personal knowledge of any of the events at the FDIC about which he wrote. He accepted at face value the portrayals of his nameless sources, without even contacting the FDIC for our perspective. Among the more troubling statements portrayed as uncontested facts were that WaMu had disrupted the markets and that I had kept everyone up all night fighting with regulators over whether to close Wachovia. But the one that bothered me most was his suggestion that our debt guarantee program had all been designed and put in place by Paulson, Bernanke, and Geithner, and they had sold it to me by promising that I would get the credit for it. In truth, as detailed in earlier chapters, those gentlemen originally proposed that I stand up and say the FDIC was guaranteeing all unsecured liabilities of all the major financial institutions free of charge. My staff and I pushed back and developed a program that had us guaranteeing only newly issued debt below certain caps and for which we charged a fee. Paulson and Bernanke readily agreed to that; it was really Geithner who wanted the draconian giveaway contemplated in their first proposal. But the program we put into place came from me and the FDIC, not them.

  Margaret Thatcher once said that if you want something said, ask a man; if you want something done, ask a woman. Women frequently are the doers—yet when it comes time to handing out the credit for successful initiatives and programs, we are all too often given a bit role. The debt guarantee program was one of the most successful and transparent and least controversial of the bailout programs. And unlike the Fed’s lending programs, the program did not add to the money supply, so there was no risk of inflationary impact down the road. We would not have offered such a program except for the pressure from the Fed and Treasury. But in the face of their insistence, we designed and implemented the program that we thought was the most responsible way to address the problem at hand: the difficulties of large financial institutions in renewing their outstanding unsecured debt. I suppose I should take it as a compliment that apparently some of them wanted to take credit for the program in Sorkin’s book.

  I suspected that gender bias would frequently creep into media coverage of me, and frankly, it cut both ways. I have no doubt that my ability to garner press coverage was enhanced by the fact that a woman heading a major financial agency was rare and a woman so visibly and publicly asserting herself against male colleagues even rarer. A lot of people in the media and elsewhere were rooting for me because they agreed with my policy proposals. A lot were rooting for me because I was a woman standing up to the guys.

  Indeed, I believe there was a lot of sympathy for me and my views because the press perceived that my male colleagues were excluding me from important decisions and discounting my views because I was a woman. I was frequently asked by reporters whether I felt that gender discrimination played a role in the disagreements we had with the other, male-led government agencies. In truth, I’m not sure. People have their biases. I was different from my male colleagues in other ways too: I was a midwesterner, and I was a product of public schools (and proud of it). With some people in Washington, being born west of the Mississippi or attending a state university instead of an Ivy League institution can be a real disadvantage. I think there was also some arrogance toward the FDIC as an agency. The other regulators looked at us as the agency that took care of the little banks and depositors with less than $100,000. They may have felt superior because they viewed their role as dealing with the “big institutions,” while we were supposed to take care of the “little guys.”

  There’s always something that people are going to use to judge you, and there’s nothing you can do about it. So my philosophy has been to just keep at it, do your homework, make your arguments, and don’t back down. When young women ask me how to navigate through male-dominated power structures, I tell them that they should first forget about whether they are being discriminated against, because they will never know and they will drive themselves crazy wondering about it. Instead, they should be prepared, hone their arguments, try to build alliances, and, above all, demand to be heard and recognized. I think the best thing that women can do for one another in male-dominated situations is to support one another’s right to be heard and assign credit to a woman when she has sponsored an idea or argument that prevails. I cannot tell you how many times I have been at meetings where I, or another woman, have made a point or proffered an idea that is met with dead silence. Then, ten minutes later, some guy says exactly the same thing and all the other guys in the room nod their heads and voice agreement. As women, we do not, and should not, feel obliged to always agree with one another. But we should support one another’s right to be heard and receive credit by saying in such situations, “Yes, Jane just made that point ten minutes ago.”

  Reporters’ perception of gender bias against me did help foster sympathetic press coverage. On the other hand, I think some of the coverage tried to personalize my motives instead of focusing on my policy positions. I have observed that tendency in the coverage of other women officials as well. Instead of ascribing our assertiveness to our desire to achieve a policy result, it is said that we are “difficult” or “not a team player” or that we are power-crazed or divas crying for media attention. I saw that kind of personalization creep into a number of stories about my leadership of the FDIC. It was frustrating to me because there were important public policy issues at stake in my disagreements with my colleagues. They deserved to be vetted and aired, not trivialized as petty personality disputes.

  Of course, some of my detractors tried to feed that line of attack. When the hard-liners went after me on loan mods toward the end of the Bush administration, they whispered that I was difficult and wanted my program or no program at all. They didn’t talk about the very real differences in views about the damage wide-scale foreclosures would cause to our housing market and broader economy. Those were the same folks who were saying that foreclosures wouldn’t create downward pressure on home prices. It reminded me of the line of attack used against CFTC Chairman Brooksley Born’s attempts to regulate over-the-counter derivatives markets in the late 1990s. Her opponents undermined her not by challenging the validity of her policy position but by suggesting that she was “difficult” and “not a team player.” Regrettably, some in the press lapped it up.

  Good reporters would fall prey to this kind of press angle. I will never forget a front-page New York Times story262 about the “feud” between me and John Dugan. Important policy differences between us on regulatory reform, bailouts, and my efforts to secure management changes at Citigroup were all boiled down to personality disputes. Similarly, when Tim tried to derail the FDIC’s independent rule making regarding reforms to the securitization market, The Wall Street Journal ran a story focusing on the “infighting263” and openly wondering whether regulators could work well together. Missing from the story was any meaningful analysis of the policy dispute over requiring securitizers to retain some stake in the performance of loans they package and sell to investors, as well as the propriety of the Treasury secretary interfering with the rule making of an independent agency.

  It might be easier and more salacious for the press to cover personalities instead of policies (and some of that may be more attributable to editors trying to sell newspapers than the reporters themselves). But the problem with that kind of media bias is that it reinforces the already considerable pressure on financial regulators to conform to groupthink and not make waves. Groupthink is exactly what led us into the crisis. First we were all under pressure to believe in the merits of self-correcting markets and light-touch regulation. Then, when the housing market started going south, the conformist view was that subprime was contained. Finally, when the system started to crash around us, the party line was to save Citi and the other mismanaged banks. Fixing the root cause of the problem—the mortgages—was just too hard. We could write big checks to help deadbeat financial institutions, but we shouldn’t spend any real money on home owners. Th
at was too controversial.

  Now that I’ve duly chastised the press corps for personalizing policy disputes, let me also admit that some of that coverage was pretty darn funny. The most hilarious came from the New York Post, which loved to caricature my fights with Geithner and his ally John Dugan. One story264, recounting my attempts to replace Citi’s management, portrayed Tim Geithner as the Joker and me as Batgirl. Another, referencing my disagreements with John Dugan over restricting private-equity investments in banks, slapped my face on a cartoon picture of the Incredible Hulk and showed me holding Dugan in a very sensitive part of his body.

  Photographers can be the bane of a female public figure’s existence. It was amazing to me how the photos or drawings accompanying a story could do more to help or damage my message and actions than the story itself. I do think people tend to judge women more on their physical appearance, though certainly men can also be subject to hurtful comments and scrutiny of their physiques. New Jersey Governor Chris Christie, for instance, has frequently spoken about the harshness—and irrelevance—of commentary about his weight.

  In 2007, Joe Nocera265 at The New York Times wrote a column on my early advocacy of mortgage modifications. It was a good, thorough piece but had the absolutely worst picture of me ever taken—a floor angle focusing in on my middle-aged neck. I had a big frown on my face. I would say that of the feedback I received on that piece, 10 percent was about my housing program suggestions and 90 percent was about the awful picture! A few years later, the Financial Times Magazine did a story about our bank resolution process with me strongly condemning bailouts of big financial institutions. The photographer took a picture of me in our lobby in front of a large wall sculpture of the American Eagle. I didn’t know it, but he had positioned me so that my body blocked the eagle’s torso. Only the wings were visible behind me, appearing to sprout from my shoulders. The photo made me look like an avenging angel.