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Last week, David Bonderman publicly complained that the FDIC was scaring off private equity from failed bank deals. Sheila Bair has heard what she refers to as "a lot of howling" about the FDIC's restrictions on private equity acquiring broken banks from the FDIC, and she's clearly channeled the ghost of Rhett Butler: "Frankly, my dear, I don't give a damn."

U.S. bank regulators have "struck a good balance" in their rules on private equity investments in failed banks, despite grousing from the industry, Federal Deposit Insurance Corp Chairman Sheila Bair said on Tuesday.

"I think we're learning as we go along, but it seems to me at this point, I think we have struck a good balance," Bair said in an interview with Reuters.

"We have had private equity in bidding, subject to our statement of bidding which requires higher capital and requires them to lock in their investment for three years." 

[...]

"I know there's still a lot of howling about it," Bair said about the rules, while noting that private equity groups often do not have a track record of bank investment, creating the need for the safeguards.

The "lack of a track record" would also have applied to Ms. Bair before she took over the FDIC, since she's never spent a day in her life in a position with an FDIC-insured institution other than a brief stint as a bank teller. Yet, she's apparently qualified to determine who does and who does not merit consideration as an acceptable buyer of failed banks and, if qualified, under what set of restrictions they should operate. Funny how what's sauce for the goose is castor oil for the gander.

Let us not quibble over such trivialities, however, lest we brand ourselves as fit for nothing more than government work. Instead, let's assume that the additional "safeguards" are justified and deal with reality, in the same sense that Olympic skier Julia Mancuso must deal with the fact that teammate Lindsey Vonn is a Nordic Amazon Goddess and Ms. Mancuso is not. You live with the facts and move on from there. As Wilbur Ross and others have previously stated, Blackstone Group's COO Garrett Moran states again: it's all about return on equity. "It is very straightforward in terms of the capital cost, you have a higher break-even point depending on what kind of return you're trying to get," he said.

"It is like getting leg ankle weights in a race -- it's a disadvantage. We're just always trying to figure out how to ...win a race with those ankle weights."

Sheila shed no tears for the shackled runners of Blackstone or its brethren.

"I know there's a lot of complaining about it, but you know, you gotta do what you gotta do," she said. "We're letting them in, we're letting them bid with some higher standards, and again I think that's appropriate."

You don't "gotta do" what you're doing, Sheila, anymore than the FDIC "had to" pioneer the Southwest Plan model of failed bank resolutions with the Dime Savings Bank resolution, when Stewart Root was with the FDIC. That was a model later adapted by the FSLIC that encouraged private investors to recapitalize the busted thrift industry. Now, the state of banking in this nation is even worse than it was then. You need to get capital from somewhere to buy all your crap, and if you're counting on the pool of "strategic buyers" from within the baking industry to supply it, you're smoking rope.

What you've chosen to do is to discourage potential capital sources and, for those private equity players who still choose to participate (and they certainly exist), you've forced them, as a matter of basic business economics, to make lower bids than you would have received if you hadn't imposed your restrictions. The FDIC's recoveries will, therefore, be less than they would have been without the restrictions.

None of which "has to be." It will "be" only because you've made a choice. A bad one, in my view, but then I don't have the decades of intense industry involvement that you possess. Moreover, my concern is for the future of the industry you're supposed to be temporarily watching over in between gigs as a university professor or CEO of a consumer advocacy group. You've obviously got more cosmic concerns on your plate.

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