Sheila Bair

This article by Joe Nocera at the New York Times gives some interesting background information about the bank bailouts. The article is about Sheila Bair, the director of the FDIC at the time.

Excerpt:

As she thinks back on it, Bair views her disagreements with her fellow regulators as a kind of high-stakes philosophical debate about the role of bondholders. Her perspective is that bondholders should take losses when an institution fails. When the F.D.I.C. shuts down a failing bank, the unsecured bondholders always absorb some of the losses. That is the essence of market discipline: if shareholders and bondholders know they are on the hook, they are far more likely to keep a close watch on management’s risk-taking.

Comments are closed.