Just as Treasury Secretary Tim Geithner finds himself wrestling with the bear that’s mauling the US economy, he’s also tussling with another: Sheila Bair, chairman of the Federal Deposit Insurance Corp.
While regulators in Washington, DC, are presenting a united front publicly as they attempt to repair a badly damaged US financial system, sources said that behind the scenes Bair and Geithner are fighting tooth and nail over exactly how to get the job done.
And as the economic crisis has worsened, Bair has been the one to come out on top.
Indeed, Bair’s star is said to be rising as Geithner faces withering criticism over the government’s missteps in its attempts to jumpstart the credit markets and for allowing American International Group to hand out $165 million in bonuses after the beleaguered insurer received a total of $170 billion in federal rescue money.
Sources tell The Post that Bair and Geithner have been at loggerheads dating back to when Geithner ran the Federal Reserve Bank of New York.
Geithner has been painted as being too cozy with financial firms and unwilling to act decisively and take on big Wall Street players.
Bair, meanwhile, has earned a reputation of being a hawkish regulator, willing to play hardball with banks and opposing providing any subsidies to bondholders and shareholders, according to one supporter.
She was also one of the first regulators to promote measures designed to stop foreclosures and modify mortgages.
And yesterday, she criticized a Geithner plan to create a so-called “systemic-risk regulator” that would monitor banking and economic issues that threaten the economy, saying such a move “is not a panacea.”
She went on to say that the feds currently don’t have a system in place to handle the failure of non-bank financial systems like AIG. One of the duties of the FDIC is to oversee the orderly dismantling of failed banks, and sources said there are signs Bair might be trying to get the FDIC involved in unwinding companies like AIG.
People familiar with the matter said that Bair and Geithner’s feud has gotten so heated that at one point last year, before Geithner was confirmed as Treasury secretary, he suggested she be ousted as FDIC chairman.
Bair was originally appointed FDIC boss by former president George W. Bush, and her appointment doesn’t end until 2011.
Yet now it seems that the one on the hot seat is Geithner, while Bair soars, and in some circles gets chatted up as a possible Geithner replacement.
“Eventually, Sheila will be the way we go,” said Christopher Whalen, head of consulting firm Institutional Risk Analytics. “She could be the next secretary of the Treasury.”
To be sure, the Obama administration has expressed unwavering confidence in Geithner especially considering that he’s been in the job less than eight weeks.
However, Bair has started to gain support, even from those who once considered unseating her, sources said.