I think most everyone is already caught up on why Larry Summers would be a terrible pick for Treasury Secretary. Today, we see in polling that 41% of Americans think that the Treasury Secretary is the most important cabinet position for the Obama Administration. This pick is obviously of the utmost importance, and I believe there is one candidate who will reflect well on Obama's best attributes, and have a plan to get us out of the mortgage mess and fix our economy.
That candidate is Sheila Bair.
Not only would she be the first female Treasury Secretary in history, not only is she a highly qualified academic and not Wall Street crony, not only would she bring diversity to the cabinet as a Republican, she is the one and only prominent regulator that has consistently, unequivocally, and presciently been on the side of homeowners in this mortgage crisis. She is, in other words, a quadruple-whammy of a great pick. More biography and telling proposals over the bump.
For more than a year, Sheila Bair has been calling on the mortgage industry to make sweeping modifications to the predatory subprime loans that were at risk of imminent default. A failure to do this type of loss mitigation, Bair argued, would not only create a greater loss for the investors who own the mortgages (thus the industry term, "loss mitigation") but it could trigger a catastrophic tsunami of foreclosures that would flood the markets with a glut of REO property, lead to a severe drop in housing values, and cause all of Wall Street to suffer great pains since so many firms were extremely exposed with mortgage-backed securities.
These kind of prophetic statements were mostly ignored by the industry, other regulators, and the Bush Administration, or were met with the industry response, "That's fine in theory, but sweeping modifications don't work in practice." In other words, Sheila Bair was all talk, and when the rubber hit the road wouldn't be able to walk the walk. Lucky for us (and unlucky for them), the failure of a major depository institution would provide just such an opportunity to demonstrate with real loans the ability of such a program to succeed.
When the FDIC took over the failed IndyMac bank, it also took over the mortgage portfolio along with the savings and checking accounts. Sheila Bair immediately set about automatically offering clear, common sense (and in English!) loan modifications to delinquent borrowers so that they would not be paying more than 38% of their income toward housing. Although the plan had some hiccups and kinks to work out, it has led to over 60,000 modifications already. Those are 60,000 of our neighbors and relatives that instead of facing foreclosure now have a monthly payments that they can actually afford. And best of all, as the FDIC has said, "This isn't a social program." These modifications are actually saving the FDIC money from the worse losses they would take on widespread foreclosures.
Now, Sheila Bair is the nation's leading voice for actually using the $700 billion bailout to help homeowners get affordable modifications, and not just helping Wall Street. Under her plan, the government would use some money from the bailout to cover half the losses if a loan re-defaulted after a mortgage servicing company offered an affordable modification to a delinquent borrower. This fear of re-defaulting is often cited by the industry as a rationale for not providing affordable modifications in the first place, and Bair's plan cuts right through to the heart of that mostly-bunk argument. This plan could help up to 2.2 million homeowners get a modification that they can afford, for the paltry sum of $24.4 billion, or slightly less than the taxpayer cash infused into just Wells Fargo.
Sheila Bair has been one of the most consistent, outspoken advocates of protecting homeowners in this crisis, and she is one of the last truly progressive Republicans in national politics. She is not a Wall Street crony, but a public servant, and is extremely competent and qualified. She previously served on the board of the very progressive Center for Responsible Lending. As a woman and as a Republican, she would provide non-token diversity to Obama's cabinet, and I'm sure she'd on occasion provide him with advice that I would disagree with. That's fine - I want Obama to hear diverse perspectives. But I also want the person in charge of the bailout to be free of conflicts of interest, and to be able to command the type of respect in industry and Capitol Hill that it will take to turn the bailout around so that it will actually fix the foreclosure crisis that lays at the heart of our broader economic woes.
Sheila Bair is my choice for Treasury Secretary.