An hour with FDIC Chair Sheila Bair

she's been called the second most powerful woman in the world as chair of the federal deposit insurance corporation sheila bair has been a cool head amidst the current turmoil in the financial sector i'm kay mcentire and today and k pr presents sheila bair who grew up in independence graduated from the university of kansas and his career has included working for senator bob dole serving as commissioner of the commodities future trading commission a failed run for congress in her five years as chairman of the fdic fear gave the two thousand ten dollar chair at the university of kansas dole institute of politics on april nineteenth she speaks here with dual institute director bill lacy alternative earlier so delighted that you could join us here to the west in the outback back on campus aka you you were student here you graduated from mile philosophy major also from a law school will replace irritate you like and what kind of lasting impact did that have on you well

they were busy days they were good days a very un fond memories here it's a beautiful campus in a great faculty a great fellow students have had a chance to see many of them i hear during my visit there today so you know i think i got a really good education in this universe that a product of the schools in her throughout my entire life with the public schools that could serve him well and i get very very fond memories what would you say you know was a most exciting thing to happen where you are to you let's see it probably getting a cardboard boxes flooding in the whole of the potter's trauma actually resist oh that's not the next morning dad's that yet and it was so it was a country at the same time and the departure of top colleges hannigan sergio with everyone else but it has had a variety of very interesting roles was so dull talk about how you eventually went to work for many want a pork informant and some of the things that you did with him over the years well i'm a lifelong makin says republican and actually i

remember as a student here one of my not so happy memories silences during their torso waning years of the vietnam war ii and sinegal was invited to speak yeah down and he was saying he was booed off the stage and it was very unpleasant there was a lot of tumult on happiness the student body and expect understand that the you know his office deserve respect is as the others so odd that's sal i wrote a letter of apology as a student here and he remembered that leader and then later i was an attorney with the old part of health education welfare show you how old i am and i was originally and the general counsel's office in washington and a part of education split off until that she championed and i was going to go the vegetation i thought that was a little more nearly a focus that i wanted to be so just so i don't well my contacts office to seek any openings of the dead on the senate judiciary

committee which is right up my alley because i practiced for civil rights law that she championed and he was on the senate judiciary committee this is in the early eighties right after president had been elected and strom thurmond the republicans and got control the senate and strom thurmond was a chairman senate education committee he had replaced her ted kennedy was a big sea change expressions of rights issues here in some key civil rights issues for support of the voting rights act extension coming up nineteen eighty two so it then satirical roy studio to play some of her broken lawnmower man and was looking for some months of civil rights back nobody remembered the letter i'd written it here which i said something about good politician it had or at that one or so i he hired me and it was the start of a greater career in the senate working they're working for him it's really sad laughter what were the war that two or three roles that huge within those were quite a few oh i think he was a master legislator i mean not the voting rights act is a good example i was a

very very difficult issue the committee is very polarized on that and he really was able to broker a compromise say in and bridge that gap and we got to get the bill out of committee on a very strong vote in that passes for a very strong vote and that and he just worked at it you know yet we set the policy says the new prayers of flexibility for the compromise too and he didn't really here to check the credit either and there was also one of them the secrets of his successes he's happy to get out of those have gotten the deal is that they have something else to do the press conference and the democratic and down and i saw him do that over never get not only is their chairman of the messages your second at his office are the finest in their time so it at night it is a great politician so he could work a crowd pleaser master in remember he was you know because it was sincere and i remember people opted i remember whenever i travel with them realistic names in arabic i afterwards that he just really like people it

gets and that the politicians generally had a genuine concern and respect and compassion for the people of kansas and every time a tatar with an intermission how did working for his initial issue both professionally and personally well i think yeah i might easily have the independent rallying in search of the senate finance committee and then later as majority leader he had every lobbyist and down constantly is forced out and he really didn't hear i mean he didn't he was the small size you know the midland was he i never saw be influenced by any particular interest in the suzuki is interested in iran than in general audiences interest i am so you know i think that was important city that he dead date he'd listen everybody always gave open access to that you just do like ten dollars right user id and that way and day and i have all i respect for their pacific washington your costly buffer five there is competing interest in this now and unless it did you can do without well alicia veteran ground and

understand ok these people want to do this they will do that if i'm a listen everybody that if you do that and i do what i think is the public interest a minimum here depending on the network for public comment its rulemaking i read do just with what is what is right and he did that over and over again and it sounds kind of try to guess that it's really true that the minute you start trying to do favors for people work get away with one faction or another that's doesn't get yourself in trouble in that nest and watch in this mission as a public servant i really think that's true after working with the center on a variety of roles you decided to throw your hat in the ring i'm personally tells him about the congressional campaigns at night and i were joking about this earlier he had actually i was i was sort of the new york stock exchange one and down she yeah my home district he has still to this that the circumstances was opening up and then i'm always yeah don't have my bike tour with a near starvation within that glitters by only short term is in the private sector at a missile has been a

public servant heart and so he have a privacy to my attention of women and talked about it and encourage people out there isn't much had no idea how to do that is the watsons go out and talk to a county republican chairman let's see what they have to say that ok so it out there i'm a diplomacy solomon drove known candidates county and no fault them and asked what they thought of the race with it have a chance native kansan grip and their stances that i didn't wash and for several years was that forty percent of people were nonetheless i hadn't washed for seven years and they all encourage me said that the theory says won't wide open than i've been shot so i came back and then report back to me so yeah i used to do it so i quit my job moved back home with my parents and i decided to run for congress and a ways he was quite it was quite a quite an experience that i'm very glad i did odd because sided it was reach of politics especially in southeast kansas senator from southeast kansas is a strong newspaper traditionally an online ad for his ad and i love going from janet

yellen this meeting of local newspaper editor which is huge is my idea of fun i also did a door to door campaign so i got my bicycle cliff and etiquette their houses faster i want that my bicycle so i know your flag on my bicycle somebody would see me they go from house to house and sometimes you're going to chat that this fire and enjoy i keep track i keep track of every single house a visit and we targeted to progress or republicans who voted last time there was a safe republican seat was a primary seat violent identifier six thousand houses falling before it's all said and done they may not fall apart correspondents for me and we will be going to a close contact with those people i had personally seen and i also found it had a nice multiplier effect is only small tents in southeast kansas you know someone on a bicycle going door to door was kind of a news item so you know the coffee clutches and their hair salons or whatever the next day and you know and i had a great time at last i was so close was one percent seven hundred and sixty votes

it you know it's there i think in a politically <unk> for opposite work of those goals campaign sincerely time i did it myself and tv is a very intensive them when they're over just like getting a grip on my mouse largely go to wake up the next day to have a campaign to get to and more and yeah when you lose by less than one percent i mean you second guess yourself a lot and so i'm i don't know i got to have philosophical about you know isis has been really fun experience a wonderful experience and a way to connect with what people can learn something about the year the political process and evening understanding what members of congress have to do with expression house within this two year cycle every two years in pre election so i'm i'm very glad i didn't in a breathtaking it was all upset with him he first got me interested imminent or sneakers was contested primary and that that you know i mean i'm glad in retrospect he didn't because it was it doing away and i think there is some respect and then after the giving is ella course he was second guessing

yourself alright endorsers you look around the bus and we don't know that would happen or not but it was just as is predicted and then public service almost your entire life how did you get interested in public service when you do you remember a point in which you kind of made a conscious decision that set that's what you wanted to do or a battery it's a good question and it's assisted migration them i think you know i am you know i've always believe in government as a source of good i still believe in the government i think a lot of people are disillusioned with their government right now and so less justified that i've always thought that you know a government is is a role governor's fighting corruption every was offered equal opportunity this is what makes this country great is a security of people get a good basic education and get access to job opportunities they need to make about what they will the government does have that will make insurance opportunities are there and i think it's really the core of what our society is about so i guess i just i think that was an attractive to

conservative since you get your start in banking right here and you were in college and he worked as a teller at a local by the idea that having an influence seen that happen actually dealing with customers will have that kind of influence your thinking about what it was like work for our thought was that the editor erin of his summer theory of that he was it was the smell of it and that i was i had yeah i graduated from college a semester early and i had about nine months before the fall semester was concerned and he did make some money and buy one simple reason women to verb so it i got a job as a bank teller and downed it was an amazing experience it was hard work but say that i think i got the three and fifty dollars a month and there was five his weekly saturday mornings as so blizzard of itself so it's really taught me something about you know budgeting and i was pretty much is trying to save as much of this as i could and so i went on the various surveys actually get a second job absolute to have to make

it normally take a little more of a cash cow for certain law school it was hard work but i enjoyed it there was a lot of focus on her face and those were the you know those are great days of banking you know people would come in the song pass that savings account of veterans those and people came in they would get him in person to make the mortgage payment you know it was a bit of a zero such pride of coming in every month and making their mortgage payment or come into their kids that their dollar to put their savings account in her catholic stanton it was a nose off it's an old fashioned humanists the us and i hope that as a command this crisis will build nuclear sense of it was that was their use of taking pride and any end in you know in and not borrow ashy kneed soon and taking pride of repaying that debt is saving i'm saving really lost or that savings culture their depression era parents and grandparents had handed down to us on hoping as vance's financial crisis has been that were really pretty herself service traditional values that i saw it every day a debt that's a piece of work in two thousand one you were serving is assistant

secretary at the treasury and you actually notice that early some practices that later on very clearly had a major role in the fighter adam tells a little bit about what you saw and what concerns you well it is interesting as the treasury that it doesn't run into thousands and i had when i was off percent confirmation decreasing meeting with the chairman of the senate banking committee paul sarbanes and his reserve has represented maryland and there'd been some terrible problems with some of the inner city neighborhoods in baltimore but what was called one flopping and these were a journal practice where people would come and it would actually i look for folks in these neighborhoods were people have equity in their houses and they give them a very high cost or payment shock on something that may be a low teaser rate them but the staff securely and you design related to sue

people could we pay them when they were researching and so i would be needing to do this and then they would do and then they would give if it went along with this on the foreclosure because the people could make the landscape and one saturday with them to the property in what was once called the thing so he was visibly going on in a ball story and data so abbott that was very egregious that there was we were already starting an art to spread out of east so what kind of practices by some non banks not not ensured investors to shows that they're having a mortgage brokers an end yes or finance companies that would make these a sipping chocolate is very high rates and that you know they were told this is premised on the idea that you get re finance a year or two and then libya homepage couldn't afford the reset rising can't refinance on again the whole bunch of fees you can refinance to get a foreclosure that he would take the property so it was it was a very get practice so anyways the series he's brought this to my

attention that one in baltimore new referred me to a report that the treasury department will promote health which supposedly has ever the problem had written on predatory lending and so i read it in italics and the critters who staff with retina and dead in it that's an anagram like he was a member of the federal reserve board the time was also looking at this for the fans' perspective because your portfolio at the fed and jab and we were getting concerned and i think it was more it was like you know code for players people not mean we've seen lenders are not doing this is one of the smaller this is much more of a consumer issues so we tried to get at group of mainstream lenders or without that we would you know an issue so without making the repetition the mortgage industry and try to get these bad actors out we try to get them together along with consumer groups sooo the dots that could've best practices and the idea was to have they just things like you know abusive

prepayment penalties are negative amortization i just don't have a way it was back then our best trips the senate candidate in a recession that's just bad practices idea of having a mortgage with paint his solo that you're actually building principal each month or anyone else is going up the city on a lot of people got trapped in those in the political problem so we were able to get a set of best practices that you know i just didn't that effort that small effort could not in any way overcome the strong economic summary starting to feed this mortgage crisis and i think a lot of it you know people blame the banks are angry with the banks and i get that i'm angry listener thanks to have taken in fairness to ensure insure that's fdic insured banks as of the more heavily regulated institutions yet most of this really dig it started outside of one cob and on may second service sector which have less regulation and as he's loose lending practices started proliferated did fall back into the highly regulated insured

banks they were losing market share to the search of the search nom de care providers and of course they were they didn't need deposits to fund their mortgages they were going to these wall street strip ization vehicles and getting money through securitizations they could bypass the banks completely and of course as its electric i'm going to pressure the banks to start lowering their standards to to get the market share backs the whole thing just aren't spiraling down but i was nine letters are in two thousand to i went to university of massachusetts amherst or four years to teach in the business school it an accident or two thousand six to take this job and dad a staff of the fdic you are looking at this and very concerned and by that point as these surly service aces going private label securitizations their funding lawsuits pending for the cellar very loosely underwritten loans they just literally just had one and so we decide to buy dated in says they were done right now she's hooligans he was in the world would look like so we bought a database a

long ago scotland performance data to see what was in these securitizations evidently i couldn't believe that i mean there is state chair prior caller two twenty three twenty sevens oscar this hybrid arms and basically inserted very very high in even starker it was really had to like nine ten percent and they were they were given to and they were heavily marketed in lower income neighborhoods minority agency at the map you see how these targeted they added star teresa be at nine percent in the research you know it you know thirty forty percent increase in a mech a couple years so would have prepayment penalties and that would go beyond the recent days if you tried to refinance out of this the state payment shot it with a realistic a prepayment penalties yeah they were being as they're very high loan devalue ratio is a very high demand written bars getting these are spending like fifty percent of their income on the moon just a mortgage payment which is far beyond what tap routine to wonder i would do that the standard is more like thirty percent and we also saw these other mortgages out there are known as

option arms or the devastation products where again you get that started during his long career she won three five years that said they would have not only an interest rate reset that again they would they would negatively amortizing pay me you're making be so low that the crystal tells the length of the building and they're almost always one on almost all the joy and i would say i would not begin backpedaling from either there's a lot of evidence of that mortgage brokers just filling in the guidance for the borrowers and to say just wanted to make that loan and down so i couldn't believe it that this is really going mainstream from two thousand when she doesn't say what it was from the perimeter a small us is smaller outfits doing a sitcom mainstream in the end this daycare wall street firms are feminist optimistic of mortgage finance companies are doing it is just amazing to me and the whole world the whole theory was the party will go on forever because of our city going to see the nose unaffordable mortgage right away says refinancing out rep night before closing and sell it at a higher price and down and down well the rest is history as they say their

lawyer says some are suspended there going beyond august mortgages and started going out and early in the year at the images the cancer and how long and how big of a role would you say the subprime crisis these practices with a really critical in terms of creating health and i think they were i think they were calm they let they let it i think yeah they were out of symptomatic of a larger problems though on too much leverage both of them you know consumers as well as financial firms are taking on too much leverage but yet there were ignoring lending standards again because the sterilizations basically a lender makes alone and then sells it off till what's called securitization trust a bunch of mortgages are packaged together in those are divided up into securities and sell the investors right so the point of that this is when the lender made the long it usually a bank or savings along to make long hold on their books of the moment and it would have taken a loss or securitization alone would actually move off of their books into the

securitization trusts are directed investors would take the loss of the bat so nobody's really paying attention and the fee structures on these are such that the reason it is again a lot of blind taste these tips are paid more and were violated they will get more based on height how it just really wasn't i couldn't believe is called yield spread premiums so actually the worst job that good for you as a as a bar or higher than just repeated charge of the bigger they're the commission was nice always sell mortgages are this year's asian trance so i am it actually fed the beast it created this huge housing bubble i do know that the whole thing was based on on the rise and i had a couple of night rising day the home prices so it just that itself so more credit began religion even to get along you know like at the end of the the frenzy and that was just because the people thought the clothes to keep going up typically credit was provided the more demand for housing and so the more the pressure on home prices i was to go up and then when the bubble burst it away said is catastrophic for everyone that it actually

was a part of the crisis and author of the consequences looking back it's just talking and retrospectively what should've been done differently identifying her three things that the arc of the meltdown i think we never said if that we never set of leveling steelers years and again that were part of a problem that reason we would not able to contain or to maintain higher quality lending standards was because you had two sectors yet more regulated banks actually had an unregulated shadows sector and as the air in and congress did try to pass laws to places you could too to authorities that had the beleaguered prime minister was across the board for the next nominee is what was the federal reserve board in which is something that they really could push back then they did have the authority and the consumer rule making authority to apply rules for the next nominee so they could have acted they did not our congress passed the laws and there's a lot of effort to try to pass medical or terminate was the

big never could get anywhere it goes because they're ready for time everybody was making money the borrowers are making money is the home prices go up that people like woody allen i cashed out get re financings a lot of borrowers are making money to get delicious the economic economic and rewards of this and affordable lending such that it was very very hard to to bring back but i think there you know and i you know i'm pretty hawkish on on not lending standards which is it's not rocket science of my cash document you know that the person is their tax return of the pay stubs you know an end and you know look if they pay bills before even if you suppress for this controversy is really reject the creditors you know i mean not everybody is ready to buy a house and make payments on their house so that they don't have it's been ok have a good record in chile milton iran sometime in the bill written by house that particular record fine are ready for mortgage it in and it doesn't do them any favors to one nation is more money down generation there's some skin in the game for the borrower to know that

the holiday dishes that borrowers perform best on mortgages if they have put some money upfront that they nourish as a commitment to the house so i think if we had her we did all those things because we did this did not far worse this city and this is the tragedy of this is a maze of people lost their house it's fascism is lower income neighborhoods people that have acquitted after her own these houses for years got caught up with these equity refinance know heckling cash out refinance person they lost homes and you know bear for years not just recently been for years that lots of because they refinanced the high i cost mortgages they couldn't pay so i think at least initially at the heart of that and we continue to push the fed homeless they had they did have applied those training and incentives for what he calls subprime loans as the higher cost loans so we continue to advocate for strong strong incentives across the word and it's not rocket science issues they're documenting income having some downpayment the candidates even ratio is except for more like you know thirty percent as opposed to fifty percent others are not as it should be harder to do

it but i do worry that we dont really have these protections in place and is the economy you know the good news is the economy may be coming back now that is that i worry that the party gets stirred up again i've made up it's a veteran regulation places before that before you'd been an advocate getting lenders to work along with the people having trouble meeting the terms are on trial and just going straight to foreclosure and how those efforts work and how they contributed to the health of the economy or we get we get pretty good job success of that with the fdic is program either not a panacea but we thought it a loan restructuring is a time tested children that that person will know they are i get the fdic because we have to do with banks and they failed to do their troubled assets we've done a long time ago that if you try to restructure loans a loan that is not performing restructured to get the park making payments again that the bedouin rubio with will be worth more in as a lost mitigation chill it won't work for everyone as some bar was when dupree

defaulting they generally you're better off really striking because the you know the let it if the home if the housing market continues to curtail it might set by trying to rework the mortgage you might lose some money by having to delay foreclosure literally defaults but the housing market was flattering going up again which is more typical indian years of the country are stealing from a business perspective you're a better shape to try to rework that home keep a borrower in their house and they're seeking can preserve the home in and also one that your losses so we had done this with our field banking assets and the part of the people who buy these mortgage loans from us as part of a field i guess as we offer some percentage of washer i had to get a better price for these mortgages and sell them to a healthier banks and give him some credit protection whale safer to provide the slosh and we would like you to make sure that the law goes into default or become so let me try and work of the arab world that is lost income or can make they're receptive to try and work it pretty good successor read a

far richer about thirty percent more sales hype it they're saying seventy percent and actually enter your sense of alarm and a graduate degree before it like that because the lungs you rehabilitate will save a lot more money than any candidate from a watchman have later by delaying the foreclosure to see it we were telling and so we have we had a kid i wish we got an earlier start i think by the time this administration had once a suffers other such a huge backlog of nonperforming loans in the foreclosure pipeline it's very very difficult once of artists used to not making a payment for settlements is very very difficult to rehabilitate his mortgage she really had to do it early in the process are really to farmers who grow up like this i think they had a big problem they inherited when they came in but i have a sign in their program has now with mixed success but i still think it's worth trying and i think they have and they have staged in some homes and i think will save more suburban

yes and you're a better footing dangers of our privacy we started hearing the phrase too big to fail mcinerney go a you are there companies that are too big villain and what are the implications well i think unfortunately adam's notes and these large financial situation so he had an implied government backstop for the crisis it is essential i re because the perception of the government will be held and that they got themselves into trouble and then of course when down the crisis yet in the number and they didn't struggle of those served those that implicit government and he became explicit that i i don't think the government analysts controversy on the narrator says of the bailouts work i don't think it really was an alternative because we didn't have to do with women religious our habits of bankruptcy and bankruptcy court just really aren't equipped to deal with a very large financial intermediaries lehman brothers is why part of the largest financial institutions will go

into bankruptcy in a prize because a massive as seizing up of the credit markets for a variety of other for a variety of reasons the main one being that they accuse of rape or a process which seemed pretty much everything stops and they're also people who have these derivatives contracts for the us unless they get special protection in bankruptcy so they can call the chilling when they have a derivatives contract hour with the entity that is failing they have the supports that and the bankruptcy rules given the ability to pull all that clutter only out of a failing it's a situation which creates great a lot of disruption out the lehman brothers bankruptcy unless the reasons why we say we saw such a seizing up of the credit markets it after that event occurred the fdic has a different process again just for insurance situations and most of the suspicions you write about it there were significant activities that ensured a unity

that under our process we can require the students to continue performing on the contents of a can walk away and pull up a clever we have to continue to perform it so writes except to repudiate those derivatives contracts we also have the ability to set up something called a branch of situation so it basically set up an institution and we take the good assets of the pieces of the failed institution that have franchise value and put them into this transitional operating entity and we found out on a short term basis as reproductive situation so we'll talk you get a much better prices are selling and operating entity suppose you are selling and it's been liquidated so it makes sense to maximize recovery provide some short term funding to keep the place afloat is an issue as you break it up and sell off the dish you're listening and secured creditors who isn't sort of what he was as their tenants that resolution so that as our process mr suarez works well for decades but we couldn't use it because so much of this is outside of insured deposits recently even some of the major it isn't it have large it should the posture is too says within the only have so much outside of them

you know you would have to run a bifurcated process of the bank over here that gets you over there just wasn't aware so there's always really with bailouts were just didn't feel like we had any alternative and the good news is that did stabilize the system that the bad news is it made explicit this implicit too big to fail an ocean dna and likely caused a lot of public outrage so trying to fix that and the dodd bill now to provide for an fdic style resolution which is what small banks have to confront every friday as his use in the papers so it's this is something this is for small institutions now and the same process is for larger institutions that korean authorities to go outside the insured banks set to do it and there the bill itself which to pressure iran specifically says she may not be alone feeling in cities what government can do it we can do it they can do it the treasure hunter nobody can do that we pushed that line which if they get in trouble they go on to this resolution in the shareholders and creditors take losses taxpayers to take exposure so i think i think if that becomes law i don't know if it's a large institutions are still fighting it i think they're

fearful of being downgraded of the victims of the worst ratings agencies say they came out with reports suggest innocence she says will be downgraded the speaking on the house passes provision the houses that provision says so under this resistance to i don't know what they'll get but i hope we do because it's really out of the city to failed motion out crates re fed into the excessive risk taking because if shareholders and creditors those who invest money through data or equity in these very large institutions they think they have all the outsider it would have if the place goes beyond the devil take the downside that pretty sinister rest they want them to take are arrested at the returns to stop and they don't like that and yet again didn't get enough trouble they get into trouble that that features taking and it is absolutely and an example of a situation we have now it's also a grossly unfair to small insufficient funding these large institutions because of the perception two big to fail they can issue debt at very favorable terms of pay virtually agreed on the date that it's easier for them to raise capital much more easier much

easier than it is for smaller institutions surveyed knows that can fail and they also couldn't can attract large uninsured deposits because people with this force official had to worry about whether they're above or below the insured deposit in a will for large to big to fail institution of figaro along a maze of deposits in the state bank and the bail them out so to worry about it and reset terrible competitive his theories with a smaller institution in exchange they have to pay more you to participate and they may have a much harder time keeping insured deposits so this ruling is tanned and we're hopeful that it does i don't know i think you know there's just a lot of pushback right now and also because the cyclical nature of the legislation and its subject of lends itself to this representation misunderstanding and we've seen and i think of the debate on this on this the rover called a resolution authority now so i'm hoping it'll go through the bottom of the well you have a lot of fascinating no jobs in your career with which he had to pick one that you thought was the most rewarding or satisfy

won her previous well i think the current probably just because we've been in the epicenter of the storm and i'm very proud of the agency for the way things are people worse here i was funerals here i'll get two thousand eight and down and i think katherine mcphee helps people were worried about their money the city that money even insured banks in and we had a very vigorous a public education campaign and we showed that feels really isn't on the temperature the pastor's your axis change things nobody's ever lost a penny pincher deposit never will so i think the ftc has a very good brand very strong record of people kind of forgotten the banking industry that you know for so long people have forgotten that sometimes banks to fail so i think stepping up to the plate in the future to passers by their money was protected if they had seen us access to their money it was very important and then it just getting out there and in colorado writes a note if there's

less circling around that if you're insured you really don't need to grieve as a lead in many of the banks has really taken many outside the bags they can't take that money and make loans and that's when the problems we have no credit availability so out mr gelbart restoration of its finances are still more bankers assured so small percentage of the overall number of banks we will have we are having we'll have more bank failures this year that you know that i think people the chemistry that ideas and none of them were religious not making sure people i have immediate access to the money and the infamous for a really silly suspicious elders tissues on friday see here is just like you know that was acquired you have to save a relationship with a new name in private management it really isn't an affair so i am very clear that it's not been easy and we were the status modalities you that we had to step up very quickly to five thousand seven thousand people about eight units are still hiring he says he sent in applications if you ever get people that resistance out there so i'm good at it he has an hour in just dealing with all those sites and then the car the

possibly agree on how to fix it is history and it says your work k i'm one last question an open about your questions along chairman bear you've got a number tonight a number of k used to say we're sitting here listening and you want to ski you graduate from school you graduate from also hear you've gone and made a difference in iraq in your life what would you say to make a huge difference here tonight that they can do in their education i do a lot of her education i would say yeah you know find out what it is so that then you find that you're good at and one word in and they go do it might have take the jobs of a steppingstone said today absolutely fox most listeners job market realistic replica define what she wanted to which are good at doing it is your important i would also say that that i hope that one of the lessons of this crisis is is that you that money isn't money is is something this important walters

but she resists of the value i think it's more important and isi i hope that said next in terms of business ethics of corporate ethics and i think a lot of large financial system to last like to me it's almost like conversation between divorce from producing things about you and and so i think you know and that your word it comes from doing something that is awful to come treat your economy and if you make money at this problem and make money is good and the calculus is this right wing is wrong way to do it you know in india during its are getting paid a lot you know well you're creating riskier as two seasoned traveler giving people the dunes proponents of events for again they'd understand can afford that's the wrong way to do it so i hope in that regard to be better some have been in this crisis and so i think no provide value added making a contribution making money that's fine to make sure this is connected to your conversation which actually begins

this opened up her culinary if you have a question please raise your hand when the students will come to you you're listening to see what their chair of the fdic on kansas public radio mama know when you're young that egypt in the mix here and reluctantly on board slides and i commend to you for being a philosopher and a lawyer and a great kansas politics in my faith in kansas bob built kind of politics and i have questioned their wooden wooden people go about capitalism isn't up companies even from your experience that was of the capital of finance are so finlay spread the pension holders all over the world are they getting award for coining the cap them or are they

being victimized by a senior management team well i think that's a really good question because you know sure equity investments are high risk investments in hand people should understand that when they buy shares of stock that is the stage erected in just a debt instrument that we're via rise or fall based on an audit of egos that said give you our people there are no pension funds are virtually interact with just this decision whether or not any kind of opposition so they have to rely on the kitchen manager who recently has expert expertise i had worked with the money and has done their due diligence and i think we've lost some of that i actually do i think his biggest issue investors are directly did rely too much of rating agencies to mention implied government guarantees did not push these large places to shows they were investing in what were you doing just that right away where these runways trades initial derivatives that you have to offer belching now why are you playing all the psychotic

compensation to distribute strainer over here who said putting on physicians in this magazine after years of terrorist mr thought why are you doing that and why cheers by brian andy and according to look i just read his charges moore says illinois has a warrant it doesn't answer questions now that a special master's at should ask danny diaz i think it if you're a pensioner or mutual fund investor with every should demand that the people who you could trust in light emitted are making that those kinds of doing that kind of research analysis and asking his words that's our question i really i get my hair garde approach to restoring faith in the banking industry who recently have been interested in high frequency trading on wall street on how to force its facts on the banking industry and what you foresee in terms of regulation

it really upset my next three seasons and there's a character really a question you know i think i think there's a real issue on the integrity of price discovery that the markets right now i really to pick up bison old fashioned on the us ivory trade is out there cleaning out there that you know i think god i worked at sac issued her five years there was before the advent of one of the more faster pace with current training and down this thing in the way of innovation on the other hand if you probably on the survey instrument stock right and if you could hear that the bridge painter your broker dealer william porter ale well where the employee what any like to make sure that that will mean something that really was reflecting the job market price of the quote i think the more that they're the markets get the faster the prices move that other trains right so if it's so if it's a you know prices executed it no names years has to be a lot more

meaningful prices no not blood or something gets executed so what will kind of wind is behind that price will cut its abilities behind that i think these things so i think the price discovery has become until it is someone that they have a victory these incidents so i'll keep my kitchen back the clock that you know of what i think is part cost of the sec the picture and put service officials detained them again i injured a direct impact on the banking industry adding six centre for commercial banks by not accept that sent their stock is traded and seventies that is obvious a lot of the big banks and investment banking and says well endowed he had to go at my sense is that this is a former trade is sort of a gravity producer i'll for them so i'm not sure that there is a direct impact other than how might in fact prices have a chance the next question when the sun i was a big fan of power mostly rumohr of your stammer as a talking head during the year when the crisis or the lead and grow jobs in our

common message that we've been through some was before the fdic had procedures they can for those procedures so some shock the most on hank paulson's new book that he says he thought that was posturing on your part they should use it do you think that you'll be hard to say but the fdic a slicer to see that talent mechanism was it would have been satisfactory to to address the crisis as we now know it i think i think it would've helped a lot i think if the fdic had had the kind of powers so please visit got in trouble as we deal with the issue the posture institutions i think there could've been a much more orderly process for him and says it uses the trouble i that would again it would have made the losses the internalized the stakeholders of those facilities which enabled us

to i can't not pay off the grid his counterpart is her group are they continue to perform in their contracts draghi did always avoided contact with big bonuses the things i think is really over the top so i do think there's a big advantages said to our process and i mean that's really what this bill is all about is china may have a process which only available for these larger does get into trouble there is a mechanism that they can be put into that will impose losses on those who failed to be so this pick as opposed to the taxpayers so yes so i do i do think it would have made a big difference and you know i think that you know this that wouldn't understand that this crisis is so much of this occurred outside the traditional banking sector and its so called status actor in our regulatory tools it wasn't just the resolution the ability to resolve a failing institution says the capital requirements ritual because they were outside a more regulated the news the consumer protections for israel to us either supervision listeners wrote

us as phillip ticket this unspoken cautious tried to two you know provide some century and oversight between banking on banks and make sure that you know prodigious of vicious applied our weather is so greater economic rescue important because it was a protection across the board and that you do this this way what effect do you think that that the repeal of the glass to your nineteen ninety eight he had to do to make things worse well you know that's that's an interesting question i think now is the investment banks that got into trouble the marquee names you've heard about were more freestanding investment banks and it didn't appear at and i'd been acquired by commercial banks made and travel to stabilize them is to some more new classical actually helped her there the peak of the crisis because the navel the commercial banks to commit quite as nice to stabilize and of course it was all as you go up and you know make this is the forgetting bigger make a

suspicious now i am you know it would be fine with me to turn back the clock on that i just i don't sense any traction in washington today i think that you have to do that over a period of time that he's at other possibility would be really hard does the suspicions broke up again commercial banking as separate from listening and separate from insurance on i would say though i think is something that people need to keep pushing and i think the reg reform bill that's before the senate now been no way precludes that from happening is anxious one step in there in that direction of the vocal with please forgive the hedge fund trading it done in their commercial commercial bank and respectfully and so it gets a step in the right direction i do i do think two years the lawsuit the academics were fractured yeah that is escalating now support to take this on as a steady you know we've been looking at lending is suing lending has not i'm a tremendous the smaller banks the massive research stabilizer going upwards of big banks loan balances of a living doing and get

down and i wonder if part of that maybe is that they can generate a lot of revenue from our investment banking operations as they don't really have to win to make money as much as they used to and weather that you know could happen an impact on credit extensions it can be because of an uprising adam davidson to get people yes i do get a lot more out of the city down that they don't get to go to i do that i think it would do would take some time and day would you know he would have made an unofficial basis or could be pretty disruptive i'm certainly open to them i notice that the last week a couple of failures going to defeat the last shares of can announce a wrenching back a little bit and as curious how she feel like that reflects a striking demand from private equity with some of the recently relaxed requirements the barriers to entry their board does it maybe indicate that good terms of some of the early watchers robot overly helpful for those banks and that you know it's gonna show on that that's

really you know that something doesn't ever taken over the ruins of a lot of money and then de think that that maybe is cause the overly harsh estimates of the impact on the deposit insurance fund nearly thirty years well i think it was like fifteen i share arm for those of you well we are absent a bank fails the fdic markets itself into an institution yeah certain categories of gases mainly residential mortgages and commercial real estate provide some watch a protection and we do this because we can get people to buy the loans without some protection against credit losses and that yeah so you see twenty eight percent who are taking some losses huge surprises or title sometimes not and down here and that we would make projections this when i lost the case and that eighty percent watch your number and we did that last year we started acting to fascinate devoted to guess nine and we visited and because you're so much uncertainty about the economy mostly apple the consumer and unemployment we'd

improvise of credit protection those loans we really were like anybody to buy them soon get its inner selves which is and it's a problematic oregon a very very low very very low price action law sure we estimate as i say this about twenty billion dollars over liquidation a what we would have had to sell if we just give yourself a salute them protection so you teach one in that market just as absolutely require that we do at twenty but now the markets are improving the economy is doing better so people feel better about with the credit losses might end up being on these loans so we're starting to get better pricing so we still add twenty plays we've encouraged editors to give us what we call market foreman bed so they wanted to lower larger percentage we welcome them and adjust the prices accordingly and so on friday we get good at one with with fifty fifty large share and that is delighted to see him so i think it is so i think we had to be at twenty less you have a big bank mississippi when it does the market improves its

economy improves and people salad the feeling about sir economy and recovery and employment stabilizing of like getting off a little better at it than us a word about the credit losses they might ultimately those loans and so hopefully will will be seeing more of that abbott you're also wrote the price in the beginning late wally as much better at night this sounds so we were ways you serve it is projected losses the bank does that get passengers found yet as he does that as well but what we projected for bank failures those losses have consistently higher than the losses were actually seeing as the banks are closed they get together prices have time for one last question so who re you make me proud to be a kansan and it all graduate you are those one of three persons i trusted through this crisis i mean that sincerely my question arises out of bill moyers journal he was

interviewing a gentleman by the name of james k wake i guess is pronounced and simeon johnson mit and harvard and their new book the thirteen bankers i ever under order but i got the gist during a journal their strongest recommendation was that our large sixth largest banks some of whom have over a trillion dollars capitalization that all banks in the united states of america they reduced to one hundred billion dollars couples nation do you believe there's a chance and hailed about developing traction because they're absolutely convinced that withstand the next crisis which is gonna come if we don't do so well with smaller institutions and i think

it's attractive as that sounds unnaturally a different way to point b and rewrite some of these are closer to train actually and now they're one of a decapitation of aden assets have really innovated assets will be quite a fraction of what the settlers as jews are now i think i created market pressure for them to downsize it is he can do that with too big to fail debate to fail through resolution mechanism i became a much higher capital standards i can also put pressure on them to downsize it more leverage you let them have the bigger there's an answer to take risk so i think there are tools and now that are created by congress the law pre market pressure greater pressure for them to get smaller you know i know there are provisions in the bill that i think would be helpful is to require them to come up with what with their own litigation and basically says show us how you can break yourself up with a teeny be broken up and sold off and he got in trouble or they can show that that i think there might be a good decade for regulatory pressure to get them to break out that year is it's a hard won some

limits and others and so it i think too to say sort of them you know by bahrain's riviera says three pr to break up and get down to a hundred billion dollars you know so that would be multiple interviews and i think it's hard to do i wish it was possible that i just think you know you get the due process clause of the constitution an idea people invest in these things and what happens to them the legal constraints on doing that as well as the economic constraints of doing and i think they're challenging so i love the idea that a very attractive idea but i think for now we need to look at increase the capital requirements the constraints on leverage regulating them better and trading market pressure for them to downsize isis as a kqed chewing into big to fail into a habit robust resolution mechanism is to be very hard for them to raise capital laurie issue debt if they can justify the market and what you're doing and i think with the size of their activism

widens to be very difficult to prove the market that they are taking progressive it will manage to live there you go and she's the risks on the balance sheet not negotiate i just characters are investing in so it goes that those are the tools that are available to us now the hill for congress to approve a un don't know i guess a very attractive idea that big complaint we'd be it would be very very typical executive editor sheila thanks so much for joining us in listening to see done there chair of the fdic independence native and two time graduate of the university of kansas she's been speaking with bill lacy of kate used dole institute of politics as the two thousand ten bowl lecture which is held each spring near the date of bob dole's injury during world war two this event was recorded april nineteenth two thousand and you can hear two previous k pr presents featuring sheila bair go to our website to a pr but kay you that edu and search

sheila bair to access those archive programs and j mcintyre we welcome your comments about k pr presents you can email me at kate mcintyre at play you that edu that's k n c i n t y r e k u dot edu kbr prisons is a production of kansas public radio at the university of kansas those are reasons it's mother's day it was a sunday evening for a special mother's day broadcast keep your prisons here on kansas public radio me