You know what? Hank Paulson may not be the most powerful financial person in the country right now. That honor goes to Sheila Bair, the chairman of the FDIC.
In recent weeks, Bair has held the banking system together, coordinating smooth takeovers of distressed banks in deals run and controlled by her agency. I wouldn't exactly say she's flying under the radar screen since these bank takeovers are front-page news. But without holding the center-stage attention that Paulson has, she has seamlessly closed and reopened IndyMac, Washington Mutual and Wachovia.
IndyMac was in fact taken over by the FDIC, becoming the IndyMac Federal Bank, while WaMu was acquired by JPMorgan Chase and Wachovia by Citigroup. So far as I know, not a single depositor at these banks has lost money. This is huge. And it suggests to me that if the Congress is unable to craft a deal for Treasury purchases of toxic assets, the nation is still in good hands as a result of the good offices of the highly professional, credible and trustworthy Federal Deposit Insurance Corp., run very well by Bair.
Who is Sheila Bair? Forbes just ranked her the second-most powerful woman in the world, behind German Chancellor Angela Merkel. Before coming to the FDIC, Bair was a professor at the University of Massachusetts. She has served at the Treasury Department, the New York Stock Exchange and the Commodity Futures Trading Commission, and was chief counsel to former Senate Majority Leader Robert Dole. Just as important, she has written two children's books, showing the kids good examples of money management.
And now she's showing the whole nation good examples of money management on a grand scale.
An editorial in Tuesday's Wall Street Journal, called "Preemptive Plumbing," walked through the details of the Wachovia takeover by Citigroup. The FDIC will backstop close to $300 billion of Wachovia assets, while Citigroup is on the hook for the first $42 billion in potential portfolio losses from Wachovia. And Citi will give the FDIC $12 billion in ownership of preferred stock and warrants. This open-bank transaction flows from the emergency powers written into the FDIC Improvement Act of 1991. Systemic risk to the financial system provides that authority.
But each of these takeovers reveals the real FDIC glue that's holding our banking system together, even in the absence of Paulson's big-bang, toxic-asset purchase plan.