Image: Bair
Evan Vucci  /  AP
"She's aggressive in the right sense," says former Sen. Bob Dole, of former staffer and current FDIC head Shelia Bair.
updated 2/1/2009 1:49:51 PM ET 2009-02-01T18:49:51

The Wall Street crowd that packed into the ballroom of the fancy Times Square hotel didn't know what was about to hit it.

As the bankers and analysts sliced into their grilled beef tenderloin and chicken, Sheila Bair stepped up to the microphone and told them off.

Too many people couldn't make their mortgage payments, she said. The mortgage industry was sitting on a ticking time bomb and just didn't get it. Pick up the phone, she said, and talk to borrowers.

"The sense of hostility from that audience was overwhelming," said Howard Glaser, a Washington-based mortgage industry consultant who sat at Bair's table that day in October 2007.

"I thought they were literally going to throw their desserts at her."

It would not be the last time the chairman of the Federal Deposit Insurance Corp. got under somebody's skin. Since the banking crisis erupted, Bair has led the call for more government action, creating a rift with former President George W. Bush's treasury secretary, Henry Paulson, and thrusting herself into the limelight.

Bair, who speaks in a soft but rapid-fire monotone, is a constant presence on financial news talk shows and on Capitol Hill. Forbes magazine last year ranked her the second-most powerful woman in the world, behind only German Chancellor Angela Merkel.

Critics say she is on a liberal crusade, but the 54-year-old Republican has won a key ally: President Barack Obama. She's working closely with the new administration on a plan to reshape the financial world by creating a so-called "bad bank" that would mop up hundreds of billions in toxic assets from the balance sheets of U.S. banks.

The bad bank, if adopted, might be run by Bair's agency, the FDIC.

No firm decision has been made, though an announcement could come this week. Meanwhile, Bair is urging Americans to stay calm, even as some of the nation's largest banks teeter. The country is far better prepared for a financial crisis than it was during the Great Depression, she said in an interview last week.

"We all just need to get a hold of ourselves," she said. "It's going to be hard. It's going to take time. But we will work through it."

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Roots in the Depression
Bair may be a Washington insider — she has lived in the area for most of the past 30 years — but her Kansas upbringing comes through in expressions like "oh golly." Hers is the world of Independence, Kan., where her late father Albert was the only surgeon in a town of 10,000. Her mother, Clara, was a nurse and a homemaker who grew up in a farming family that struggled to make ends meet during the Dust Bowl of the 1930s.

"We're direct — maybe sometimes too direct," Bair said. "The kinds of basic values I learned growing up in the Midwest are good things."

During the Depression, Americans learned tough lessons about the importance of thrift, but that sensibility has been lost in recent years, she said.

"We're getting back in touch with that," she said. "I think ultimately that will make us stronger as a society again."

Bair is quick with a laugh but is still a serious-minded policy wonk who tosses out terms like "regulatory arbitrage," "net present value" and "granularity" and keeps neat stacks of papers on her desk overlooking the Washington monument.

After graduating from law school in 1978, Bair took a job as a civil rights lawyer for Department of Health, Education and Welfare. Eventually, she landed on the staff of Sen. Bob Dole, a fellow Kansan. Being from "a good Kansas Republican family," didn't hurt, Bair said.

"She's aggressive in the right sense," said Dole, who still speaks with her monthly. "If she has an idea, you're going to hear about it."

Bair moved home to run for the House of Representatives in 1990, losing in the Republican primary by fewer than 800 votes. She has fond memories of riding a bicycle through the district with a little yellow flag attached, handing out yellow and blue brochures and following up with personal notes.

"You're out there riding your bicycle running for Congress, you're the talk of the town for weeks," she recalled. At the time, Bair was single, and that may have contributed to her defeat, at least in Dole's opinion.

"Out in parts of Kansas, we like to elect married people," Dole said. "I always used to tell Sheila, 'if you had been married, you would have been a shoo-in.'"

'Rock and Brock'
After leaving Dole's staff, Bair served on the Commodity Futures Trading Commission for four years until 1995. She was a top lobbyist for the New York Stock Exchange until 2000, a taxing job that required constant travel. It also meant less time with her two children, Preston and Colleen, who are now 15 and 9.

She met her husband, Scott Cooper, in the late 1980s at a party on Capitol Hill. Cooper, who works at a Washington trade group, said his wife has an uncanny ability to stay calm and put work behind her when she's not at the office.

"When she comes home, she's home, and she's part of the family." Cooper said. "Not that she doesn't use her BlackBerry a lot."

Bair returned to government after Bush took office in 2001, receiving assurances that her job as an assistant treasury secretary overseeing banking policy wouldn't be a 24-7 affair. But then came the 9-11 attacks and the collapse of Enron. Protecting banks from terrorist attacks and reforming the pension system became part of her mandate.

At Treasury, she worked with the late Federal Reserve Governor Edward Gramlich on an early effort to combat predatory lending. Gramlich was one of the first regulators in Washington to warn about dangerous lending practices.

Seeking again to spend more time with her kids, Bair left government in summer 2002 for the University of Massachusetts, Amherst. There, she taught financial regulatory policy for four years and wrote two children's books.

One of them, "Rock, Brock and the Savings Shock," tells the rhyming story of two young boys. Rock burns through his allowance on trinkets like green hair goo and peppermint-flavored wax fangs. His thrifty brother Brock saves to buy a telescope and presents for his parents.

"Brock's cash," Bair writes, "grew and grew and grew — eight, then sixteen, then thirty-two. His pile of bucks became so great, he had to store them in a crate! Ten weeks went by. Poor Rock was doomed. He had no cash; Brock's had ballooned!"

Making enemies
When the Bush administration went looking for a chairman of the FDIC in 2006, Bair was a known quantity with a long background in banking issues. Plus, nobody expected the job to be all that exciting.

The FDIC, which celebrated its 75th anniversary last year, insures deposits up to $250,000 per account, an amount lawmakers raised from $100,000 last fall. The agency employs about 5,000 and its $2.2 billion budget comes from more than 8,300 FDIC-insured banks.

Bair didn't have much of a honeymoon. Months after she was confirmed, the agency's top economist warned trouble was brewing with mortgages made to borrowers with poor credit.

As the subprime crisis exploded, she became an outspoken voice for government intervention, though her ideas never caught on with the Bush administration. Democrats in Congress, though, embraced them with fervor. Last November she broke with Paulson and proposed using some of the $700 billion in financial bailout money to prevent foreclosures.

"She made bitter enemies out of the (Bush) administration," said William Seidman, who led the FDIC from 1985 to 1991. "If they had their choice of one official that they could personally throttle, she would lead the list."

Earlier this winter, Washington was awash with suggestions Bair had also clashed with then New York Federal Reserve Bank President Timothy Geithner, who is now Obama's treasury secretary.

Bair insists there won't be a problem with Geithner.

"We have different perspectives frequently, and I think that's a healthy thing," she said. "You don't want to get everybody in the room nodding."

Critics say her record of helping consumers stave off foreclosures is mixed and that she has steered the FDIC into an activist role to the detriment of the agency's traditional purpose of limiting the damage from failed banks.

"She's off on a lot of social missions," said Bert Ely, a banking industry consultant in Alexandria, Va.

Bair, though, said she remains "very much a capitalist."

"Sometimes people misinterpret that as somehow I'm not a real Republican or something. I very much am. I guess I'm more of a Teddy Roosevelt kind of a Republican ... It's been said that Franklin would be proud of me, but I think Teddy would be proud of me too."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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