A fundamental clash of philosophies ran throughout the response to the financial crisis, Sheila Bair, former head of the Federal Deposit Insurance Corp., told CNBC’s "Power Lunch" on Tuesday.
In her new book, “Bull by the Horns,” Bair was highly critical of Timothy Geithner, both during his time as head of the New York Fed and then later as Treasury secretary, referring to him as "bailouter" in chief.
While Geithner did what he thought was right, “His world view was if you help the banks out of their troubles, you’ll help the broader economy,” Bair said on CNBC. Geithner’s priority was the big banks, particularly Citigroup .
Instead, Bair wanted to impose broader market accountability, including having bondholders take losses and for those that lent money to financial institutions to share more of the pain.
“The Treasury and the Fed were not talking to the FDIC,” she said. “And some of that was calculated because if they brought us in early in the process, we’d have more ability to guide the decision making.”
The conflict, which started during the Bear Stearns bailout, spilled over into the Dodd-Frankdiscussions as well, Bair said.
Referring to the Bear-Stearns bailout, Bair said that to this day, “I’ve never seen good analysis as to why Bear Stearns was systemic.” Bear Stearns was sold off to JPMorgan with Federal Reservesupport in 2007. That analysis, she said, is "important before exposing government money to bailout institutions that have been mismanaged.”
Because of the conflicting approaches to solving the financial crisis, the ultimate response to was lacking, Bair said.
In addition to tainting all major financial institutions, some of which were stronger than others, she said “we didn’t help homeowners, we didn’t tackle mortgages the way we should have, we never cleaned up bank balance sheets which continue to be a drag on the economy, and the horrible public cynicism toward Washington and large financial institutions and this perception that the game is rigged was created by the bailouts."