McKinley Ruffles FDIC Feathers in Forbes—His Response to FDIC General Counsel KrimmingerVern McKinley • Friday July 8, 2011 9:51 AM PDT •
After our Forbes magazine piece, “Sheila Bair’s Legacy: Bailouts, Secrecy and Power Grabs,” the FDIC found time to respond to our comments. The response was penned by FDIC General Counsel Michael Krimminger, who refers to our editorial as “more personal attack than commentary.” Let’s make a clear distinction here. Our commentary was entirely based in fact and had an underlying, documented basis.
The following discussion will go through some of the major issues raised by Krimminger and will link the key underlying documents in question, many of which we fought years to be exposed to the light of day through two Freedom of Information Act (FOIA) lawsuits against the FDIC. Readers can judge for themselves the noted policy disagreements and who is right and who is wrong.
McKinley and Fitton are simply wrong in charging Chairman Bair and the FDIC with supporting bailouts—Chairman Bair led the FDIC Board in voting for the bailout of creditors of Wachovia, Citigroup, Bank of America bailouts. These are so-called “Too Big to Fail” interventions, because they were directed to large mega-banks and such interventions are not available for small or medium-sized banks. Compare those board minutes to what was originally released by the FDIC before the McKinley/Judicial Watch FOIA lawsuits: Wachovia, Citigroup, and Bank of America.
These were not simply decisions by the FDIC Board—We did not focus on the other requirements of the systemic risk exception such as approval by the Federal Reserve, Treasury Secretary and President. We only noted that Chairman Bair “led her board in invoking the systemic risk provision” for these bailouts. The FDIC is a key agency in this process as the systemic risk exception is contained in the Federal Deposit Insurance Act.
The new resolution authority was not a “power grab”—The FDIC lobbied heavily both in the press and on Capitol Hill primarily by criticizing the bankruptcy court for its handling of the Lehman Brothers liquidation. As part of this campaign, the FDIC claims its experience in handling the liquidation of a population of mostly small commercial banks somehow makes it qualified to be the liquidator for the next Lehman Brothers.
The Court did not find FDIC’s position on disclosure “baseless”—This is a direct quote from the Court: “Defendant’s argument to the contrary is baseless” (page 7 of Judge Sullivan’s opinion and search “baseless”) This refers to the FDIC’s argument that the McKinley claim was moot because the FDIC complied with its obligations under the FOIA by producing the requested documents. As can be seen from a reading of the opinion, Judge Sullivan disagreed.
The FDIC has been a leader in transparency in government—That may have been the case during the last financial crisis, when the FDIC readily disclosed documents such as meeting minutes and internal memos during congressional hearings on the Continental Illinois bailout, but it is no longer the case today. The Board of Governors of the Federal Reserve has been criticized for its lack of transparency during the recent financial crisis, but in our opinion the FDIC has been much more secretive and much less willing to disclose the details of its deliberations than the Board of Governors. We are well positioned to make that determination as we also have two FOIA cases ongoing against the Board of Governors.