Tag: Paulson

Hedge funds planned on a killing in Iceland. Iceland says, “Piss off!”

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Tourists steaming in the Blue Lagoon

When Iceland’s banks failed in 2008 under $85 billion of debt, dozens of hedge funds flocked to the island betting they could make money buying up creditor claims. Five years later, they’re still waiting.

The firms, including Davidson Kempner Capital Management LLC and Taconic Capital Advisors LP, snapped up the claims on the lenders’ assets at prices far below face value. They were wagering, as they did when Lehman Brothers Holdings Inc. went bust, that they’d profit as markets recovered, bank assets were sold off and creditors repaid. Over the years, about 80 firms joined, including Paulson & Co., which had made more than $1 billion betting on Lehman claims…

What the investors, some of them managing more money than Iceland’s $14 billion economy, may not have factored in was the backlash in the country of 320,000 people against the speculative Wall Street culture that, in their view, helped cause the failures of Glitnir Bank hf, Kaupthing Bank hf and Landsbanki Islands hf. While Lehman has paid out more than $40 billion to claim holders in the past five years, the hedge funds have yet to get any distributions from the Icelandic banks’ estates. The government, elected in April on a platform that included providing mortgage debt relief to Icelanders, has proposed paying the funds only part of their claims and using the difference to finance its campaign promise…

Attacks on the country’s banks “give off an unpleasant odor of unscrupulous dealers who have decided to make a last stab at breaking down the Icelandic financial system,” Morgunbladid newspaper editor David Oddsson said at the central bank’s annual meeting. “They will not get away with it.”

Keep on rocking in the Free World. Especially when the center of that world apparently is Reykjavik.

Exit interview with Sheila Bair as she prepares to leave the FDIC

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‘They should have let Bear Stearns fail,” Sheila Bair said.

It was midmorning on a crisp June day, and Bair, the 57-year-old outgoing chairwoman of the Federal Deposit Insurance Corporation — the federal agency that insures bank deposits and winds down failing banks — was sitting on a couch, sipping a Starbucks latte. We were in the first hour of several lengthy on-the-record interviews. She seemed ever-so-slightly nervous.

Long viewed as a bureaucratic backwater, the F.D.I.C. has had a tumultuous five years while being transformed under Bair’s stewardship. Not long after she took charge in June 2006, Bair began sounding the alarm about the dangers posed by the explosive growth of subprime mortgages, which she feared would not only ravage neighborhoods when homeowners began to default — as they inevitably did — but also wreak havoc on the banking system. The F.D.I.C. was the only bank regulator in Washington to do so.

During the financial crisis of 2008, Bair insisted that she and her agency have a seat at the table, where she worked — and fought — with Henry Paulson, then the treasury secretary, and Timothy Geithner, the president of the New York Federal Reserve, as they tried to cobble together solutions that would keep the financial system from going over a cliff. She and the F.D.I.C. managed a number of huge failing institutions during the crisis, including IndyMac, Wachovia and Washington Mutual. She was a key player in shaping the Dodd-Frank reform law, especially the part that seeks to forestall future bailouts.

Since the law passed, she has made an immense effort to convince Wall Street and the country that the nation’s giant banks — the same ones that required bailouts in 2008 and became known as “too big to fail” institutions — will never again be bailed out, thanks in part to new powers at the F.D.I.C.

Just a few months ago, she went so far as to send a letter to Standard & Poor’s, the credit-ratings agency, suggesting that its ratings of the big banks were too high because they reflected an expectation of government support. If a too-big-to-fail bank got into trouble, she wrote, the F.D.I.C. would wind it down, not bail it out…

She didn’t spend a lot of time fretting over bank profitability; if banks had to become less profitable, postcrisis, in order to reduce the threat they posed to the system, so be it. (“Our job is to protect bank customers, not banks,” she told me.) And she was a fierce, and often lonely, proponent of widespread mortgage modification, for reasons both compassionate (to help struggling homeowners stay in their homes) and economic (fewer foreclosures would help the troubled housing market recover more quickly).

I’m just giving you a taste of the beginning of this interview. It’s quite long, detailed, and near as I can tell an accurate picture of the individual who acted throughout the crisis of the Great Recession to defend local community banks, the historic integrity of banking regulation – how this was corrupted and almost destroyed along with our national economy – and as an aside, a reminder to younger folks who know only the deceit and corruption of Bush, Cheney, the racism of Nixonian Republicans, the nutballs of the Kool Aid Party – what a traditional American conservative used to sound like.