In Defense of Sheila Bair
It’s too bad incoming Treasury Secretary Tim Geithner has it in for Federal Deposit Insurance Corp. Chairwoman Sheila Bair. Geithner thinks Bair isn’t a team player and he wants to push her out of office, Bloomberg reports.
That could be a mistake. Bair has widespread support from housing advocates for pushing the idea of mass loan restructurings, back when no one else was talking about them. She’s been a forceful voice for the belief that foreclosures are at the heart of the housing crisis, and until the government begins to address them, things aren’t going to get much better.
Not that Bair is perfect. Her agency’s attempts to set an industry standard by doing mass loan modifications of the failed IndyMac bank’s mortgages have fallen a bit short. Even the FDIC can’t get past the reluctance of investors to agree to restructurings. Still, she was out there, giving it a try, at a time when the Bush Administration expressed little interest or support for the effort.
But now she’s really making her mark. On Thursday, she told the Consumer Federation of America she wants to put an end to the myth that the Community Reinvestment Act somehow caused the housing crisis, Housing Wire reports:
The Community Reinvestment Act — or CRA — is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.
“Point in fact,” Bair said, “only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”
And “Let me ask you,” she proceeded. “Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.” The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.
This is notable because I don’t recall anyone else in the Bush Administration standing up to refute the charges against the CRA. The idea that poor and minority borrowers caused the housing crisis is not only absurd, it’s also racist. The fact that no other administration official has attempted to set the record straight on this tells you all you need to know about the ethics and values of the Bush White House.
So good for Bair. Maybe Geithner’s got a point. He’s got to work with her, after all. But if President-elect Barack Obama is sincere about wanting people in his administration who speak truth to power, Bair has proven that she fits that bill.