Inside the Meltdown
SHEILA BAIR
... FDIC [Federal Deposit Insurance Corp.], established 75 years ago in the Great Depression. ... How does it feel being head of FDIC during another grand crisis?
It 's a very important place to be right now. We 're getting a lot of media attention, and I think that 's positive because I think the FDIC is all about public confidence. That 's how we maintain the stability with people having confidence in our brand and our insurance guarantee, and I think we 've done that fairly successfully. We have seen a lot of stability. People are keeping their money in banks, which is good. ...
I think we 'll be judged by how history judges us, whether we continue to be effective in trying to stabilize the banking sector and maintaining people 's confidence in the banking system. ...
You say in speeches that the FDIC and yourself saw a storm brewing over the last two years. ...
When I came to the agency, we were still in a very benign economic environment, but the FDIC staff, our supervisors as well as our economists, were expressing a lot of concerns about what we call the underpricing of risk. There was just too much credit out there, and there was a risk premium being charged for the credit that was being extended. And that was particularly true in the mortgage markets. ...
Most of the really weak underwriting occurred in loans that were packaged in securitizations by Wall Street and then sold off to private investors. So we bought a database that included these loans to try to get a handle on how bad the situation was. And it was pretty frightening what we saw, especially with the subprime market, these very, very steep payment [resets]. You had starter rates that were very high already, 8 or 9 percent. Then they would go up to 11, 12, 13 percent after two or three years. And they really weren 't designed to be affordable after that reset. They were designed to prompt another refinancing, so you get another whole round of fees and, in some instances,
... FDIC [Federal Deposit Insurance Corp.], established 75 years ago in the Great Depression. ... How does it feel being head of FDIC during another grand crisis?
It 's a very important place to be right now. We 're getting a lot of media attention, and I think that 's positive because I think the FDIC is all about public confidence. That 's how we maintain the stability with people having confidence in our brand and our insurance guarantee, and I think we 've done that fairly successfully. We have seen a lot of stability. People are keeping their money in banks, which is good. ...
I think we 'll be judged by how history judges us, whether we continue to be effective in trying to stabilize the banking sector and maintaining people 's confidence in the banking system. ...
You say in speeches that the FDIC and yourself saw a storm brewing over the last two years. ...
When I came to the agency, we were still in a very benign economic environment, but the FDIC staff, our supervisors as well as our economists, were expressing a lot of concerns about what we call the underpricing of risk. There was just too much credit out there, and there was a risk premium being charged for the credit that was being extended. And that was particularly true in the mortgage markets. ...
Most of the really weak underwriting occurred in loans that were packaged in securitizations by Wall Street and then sold off to private investors. So we bought a database that included these loans to try to get a handle on how bad the situation was. And it was pretty frightening what we saw, especially with the subprime market, these very, very steep payment [resets]. You had starter rates that were very high already, 8 or 9 percent. Then they would go up to 11, 12, 13 percent after two or three years. And they really weren 't designed to be affordable after that reset. They were designed to prompt another refinancing, so you get another whole round of fees and, in some instances,