Sheila Bair Nails Obama's Biggest Failure

Sheila Bair has been making the media rounds lately in support of her new book, chronicling her experience as FDIC chief during the financial crisis. Her basic argument is: Tim Geithner & Co. were primarily focused on bailing out banks, and they didn't think at all about helping homeowners or cleaning up bank balance sheets, and making bondholders pay. The line is half-correct. The part that's wrong is where she talks about cleaning up bank balance sheets. It's nice from a moralistic perspective to talk about haircuts and pain and everything, but this wouldn't have helped the economy. As we explained on Monday, countries that gave banks a carte-blanche bailout have seen better economic performance than those countries which tried to "clean up" the banks with haircuts and nationalizations. Furthermore, it doesn't make logical sense to think that bank balance sheet problems have hurt the economy, given that the lack of lending has been mostly a demand-side phenomenon. More