*Sheila Bair for the Federal Reserve Chairmanship*
**By Phil Hall**
***Last week, I used my digital soapbox to explain (rant?) on why Lawrence Summers would be the worst possible choice to run the Federal Reserve. Of course, it is very easy to be negative – the real challenge is to offer a positive alternative to a Summers candidacy. Here’s my thought process on who should get the job:
****So far, two Fed bigwigs, Vice Chairwoman Janet Yellen and former Vice Chairman Donald Kohn, are considered to be frontrunners along with Summers in the race to become the central bank’s head honcho. But I think that Yellen and Kohn would also be the wrong choices because they would continue pushing policies that, quite frankly, have failed to work. The Fed is in desperate need of new energy and new ideas, and you won’t get that if the same characters occupy the power spots.
****I believe that the best possible candidate to lead the Fed is a non-Fed official with significant regulatory experience, a history of forging bipartisan cooperation on thorny economic issues and a strong level of respect from across the political spectrum. Thus, I am proposing Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corp. (FDIC), as the successor to Ben Bernanke.
****To her credit, Bair was the rare federal regulator that commanded an unusually high level of respect with both parties. Even though she is a Republican, she was reportedly pursued by Sen. Chris Dodd to consider the directorship of the Consumer Financial Protection Bureau – Dodd had doubts about the strident Elizabeth Warren and obviously preferred Bair’s approach to communications. And Rep. Barney Frank, Dodd’s partner in crime in authoring a certain 2,300-page legislation, openly rued Bair’s departure from the FDIC in 2010.
****As a public figure, Bair is savvy enough to transcend both partisan politics and the divide between government and the private sector. This is evident in her stewardship at the Systemic Risk Council, which consists of retired government officials from both parties along with corporate leaders including former Citigroup chieftain John S. Reed. The ability to bring together diverse opinions in pursuit of feasible socioeconomic policies is the key talent that any future Fed leader needs.
****And if we set the Wayback Machine about five or six years, we discover that Bair – unlike Bernanke and his predecessor, Alan Greenspan – was more than cognizant of the growing maelstrom that eventually wrecked the economy. Her prescience was acknowledged in March 2009 when the Kennedy Library Foundation awarded her the Profile in Courage Award for showing “political courage [in]…sounding early warnings about conditions that contributed to the current global financial crisis.”
****Of course, there is no such thing as a flawless candidate, and Bair’s record has some potholes that require further explanation. For starters, I could never comprehend her repeated blockage of efforts to create a federally regulated covered bond market. Yes, she was not the only person in authority that was hostile to the concept, but her refusal to explore this idea – which would have jump-started the private-label secondary market – was always somewhat puzzling.
****Furthermore, I have been bothered by her repeated refusal to accept any responsibility for the problems that beset the banking industry during the years she was at the FDIC helm. Lest we forget, there were more bank failures during Bair’s leadership at the FDIC then at any time since the Great Depression. Yes, she was not personally behind each and every bank’s demise, but the buck stopped in her office during those ghastly years.
****But, then again, when was the last time that anyone in Washington ever admitted that they were to blame for anything? The fact that no one in power paid attention to her early warnings is widely blamed on the stupidity of the Bush Administration in facing the facts rather than on Bair’s ineffectiveness as a vocal prophet, and few people in high positions have blamed her for the bank failures of the past few years. Bair was the only federal official to rise from the 2008 crash without scars on her record, which is testament to the level of respect she commands.
****As for today’s situation, Bair recognizes that the Fed’s QE-Forever policies will have a deleterious impact on the economy. In a column published in Fortune in April 2012, Bair cogently explained the errors of the Bernanke prescription in no-nonsense language.
****“History has shown that a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending always ends badly,” she wrote. “Absent a change in policies, a toxic brew of volatile interest rates and uncontrollable inflation could define our future.”
****Indeed, the Fed has to stop feeding the economy painkillers and start giving it vitamins – any growth under the current Bernanke regime has been flimsy and flabby. The central bank’s leadership is in desperate need of vigorous new leadership. And while Sheila Bair is hardly perfect – to put it mildly – her skills and brainpower cannot be ignored, and the economy would benefit from her guidance. I think that she should be tapped to become the next leader of the Federal Reserve.