By Mick Krever, CNN
The former head of a top U.S. financial oversight agency issued a stark warning over the upcoming, déjà vu battle over America’s debt ceiling.
“As sympathetic as I am to some of the Republican concerns about our fiscal situation,” Sheila Bair, former head of the Federal Deposit Insurance Corporation said told CNN’s Christiane Amanpour on Monday, “those are nuclear bombs that you can never actually use.”
Bair served under both Presidents George W. Bush and Barack Obama as head of the FDIC, which guarantees the deposits of Americans’ bank accounts.
The mystery over who will lead the most important regulatory and financial body in U.S. government, the Federal Reserve Bank, was significantly elucidated Sunday when Lawrence Summers, former economic adviser to Obama and former president of Harvard University, withdrew his name from consideration.
“I think what Larry did was good for the president and good for the country,” Bair said of the outspoken candidate. “I don't think he could have gotten confirmed; he was quite controversial.”
Sunday also marked five days since the shocking collapse of Lehman Brothers, a day on which investors and regulators alike stared into the abyss of financial ruin.
Half a decade later, American lawmakers tout their actions to shore up the system.
Wall Street is booming and corporate profits are up, but the income for the average American family actually dropped since 2008.
Bair told Amanpour that the U.S. needs “a complete financial reform.”
“I don't think we are on the right track at all,” Bair said. “The economy is still very sluggish. A lot of the improvement in the unemployment rate, about half of it has become from people just dropping out of the workforce, getting discouraged. When the jobs do come back they're lower paying; income inequality is getting worse.”
And while banks are less leveraged – they have more cash on hand for each dollar they have invested – the situation is still “not nearly as safe as it should be,” she said.
“We had a pretty low baseline prior to the crisis,” Bair said. “So saying there's less leverage now isn't saying a lot.”
In the long run, it is against the banks’ interest to oppose more complete reform, according to Bair.
“It's self-defeating for them to oppose their regulatory process that has credibility,” she said, “because the public will not trust them unless they trust the regulatory process, and they don't trust the regulators now, either, unfortunately.”