Why ‘inflated’ stock prices, bank deregulation could signal economic trouble ahead

By U.S. EconomyFOXBusiness

Stocks, bonds are being overvalued: Former FDIC chairman

Former FDIC Chairman Sheila Bair discusses the 2008 financial crisis and why she believes that low interest rates are causing assets to be overvalued.

It has been a decade since the financial crisis nearly imploded America’s biggest banks and wiped out trillions of dollars in retirement savings and home values, leading to the Great Recession.

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While much regulation has been implemented to better handle a potential repeat and banks are better capitalized, another crisis could be brewing with consumer and government debt at historic highs, former FDIC Chair Shelia Bair warned.

“I do worry that the economic growth is being driven too much by unsustainable debt-driven consumer spending and corporate spending,” she told FOX Business’ Neil Cavuto on Wednesday.

Bair, who was head of the FDIC during the crisis, also sees risks in the value of stocks and bonds, which she described as “inflated” due to prolonged record-low interest rates. The Federal Reserve intentionally kept rates low to shore up the economy following the crisis that began with the collapse of Lehman Brothers.

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At that time, with the U.S. financial system on the brink, the U.S. government bailed out major banks including JPMorgan, Citigroup, Bank of America and Goldman Sachs, a move Bair says shouldn’t happen again.

“I want the priority to be preventing [bailouts] from happening again and that first and foremost means much stronger capital requirements,” she said during the interview on “Coast to Coast.”

Not everyone shares Bair’s view. Congress has been pushing to cut back financial regulation and ease capital requirements for smaller banks.

In Bair’s view, some lawmakers have “very short memories,” she said.

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