By Sally Greenberg, NCL Executive Director The New York Times Magazine recently ran a profile of outgoing Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair. Its written by a business columnist whom I’ve come to revere – Joe Nocera. I blogged a while back about Nocera’s wistful interview with a heroic banking CEO who believes that his industry has become greedy and exclusively interested in making money by engaging in transactions for fees, and not by ending money. In this piece, Nocera talks about why Bair played a heroic role in the finance world over her five-year term. “Alone among the regulators… the FDIC began to home in on subprime lending. By 2006 the subprime industry was running amok, making loans – many of them fraudulent – to just about anyone with a pulse. Most subprime loans had adjustable interest rates, which started low but then jumped significantly after a few years, making the monthly payments unaffordable for many homeowners. The lenders didn’t care because they sold the loans to Wall Street, which bundled them into mortgage-backed bonds and resold them to investors.” I don’t think I’ve read such a clearly stated, short, and concise description of what caused the collapse of our financial system. Nocera makes all the critical points in the span of a few sentences: a) none of the regulators but FDIC were paying attention to subprime loans b) there was fraud involved in many subprime loans – for eg, paperwork altered to make the buyer appear to have a higher salary and take out a bigger loan c) the adjustable interest rates that kicked up high after a year or two and made the mortgages unaffordable d) no one had skin in the game – or cared that the loan couldn’t be paid back - because the risk-riddled mortgages were sold to Wall Street almost as soon as the loan was issued But Sheila Bair and her staff at FDIC knew and they tried to blow the whistle. They called industry players together, pushing them to raise their standards. They wouldn’t do it. She opposed new rules that that allowed reduced capital requirements to cushion against losses. She lost that battle. Bair tried in a number of ways to stem the tide of subprime loans. Sheila Bair has always stood out to me as a lone voice for strong oversight and regulation of the markets. You cannot live in capitalist economy without strong regulation. Bair maintained her standards and never tired of raising her concerns, even though she often lost her battles. Her term expired on July 8 and she is moving on. With her departure, we lose a highly skilled, outspoken and principled public servant; had we listened to her from the beginning, we might have avoided the terrible economic calamity of the last three years.