This book will address and answer the key questions...What's a zombie bank? When losses of a financial institution exceed its paid-in capital, it's insolvent. Thanks to systemic deregulation in the last 30 years and cheap credit availability, banks in the U.S. and Europe borrowed more and more on a thin layer of equity, funding the explosive growth of their housing markets through securitized mortgages and piled many of the mortgage-related securities on their balance sheets. Why do we keep them alive? For many of these banks, having become too big to fail is their blessing. The global financial system has become so interconnected that the failure of one giant bank like Citi would have repercussions far and wide. How does that hurt economic recovery? The banks have been making profits thanks to this interest rate subsidy at the expense of taxpayers, pensioners and other savers. Yet their hidden losses are so big that it will take them many more years to replenish their capital to the necessary level. So they need to keep hoarding all the cash they make to themselves, and cannot make new loans. That hurts market liquidity, which slows and flattens growth. What needs to be done? The U.S. and the EU need to face the harsh reality in the face and accept the bitter medicine rather than push the problems out to the next decade, which will be lost if they do so. Effectively, austerity measures.
Sheila Bair, former FDIC chairman and one of the first people to acknowledge the full risk of subprime loans, offers a unique perspective on the greatest crisis the U.S. has faced since the Great Depression.
Sheila Bair is widely acknowledged in government circles and the media as one of the first people to identify and accurately assess the subprime crisis. Appointed by George W. Bush as the chairman of the Federal Deposit Insurance Corporation (FDIC) in 2006, she witnessed the origins of the financial crisis and in 2008 became-along with Hank Paulson, Ben Bernanke, and Timothy Geithner-one of the key players invested in repairing the damage to our economy. Bull by the Horns is her remarkable and refreshingly honest account of that contentious time and the struggle for reform that followed and continues to this day.
A level-headed, pragmatic figure with a clear focus on serving the public good, Bair was often one of the few women in the room during heated discussions about the economy. Despite her years of experience and her determination to rein in the private banks and Wall Street, she frequently found herself at odds with Geithner. She is withering in her assessment of some of Wall Street's finest, and her narrative of Citibank's attempted takeover of Wachovia is a stinging indictment of how regulators and the banks worked against the public interest at times to serve their own needs.
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