Sheila Bair, Volcker Alliance Director and Former FDIC Chair joins the Yahoo Finance Live panel to discuss President-elect Joe Biden formally beginning his transition to the White House and his reported pick of Janet Yellen as treasury secretary.

Video Transcript

SHEILA BAIR: President-elect Biden has got a lot of goodwill in the Senate, a lot of-- he's worked with Republican senators in the past. They like him, they respect him. I think they will really go out of their way to confirm his first wave of appointments, and speedily confirm her.

She has a lot on her plate. I hope that they will do a pandemic relief bill now, or soon, so that she doesn't have to wait until the new administration comes in to negotiate that. Though we may need some more aid.

But if not, that's certainly the first thing she's going to be having to deal with. And I think that's going to be her major preoccupation, the pandemic for the next year. Though there are a lot of other issues on Treasury's plate, like financial stability and tax reform that she'll also need to address.

- On the topic of tax reform, I mean, we've been talking a lot about that, particularly when it comes to maybe President-elect Joe Biden not necessarily seeing the same amount of push from the more progressive side of the Democratic Party. Perhaps because, you know, the Senate looks poised to stay Republican-controlled.

On that front, though, we've even heard from some Republicans, including Gary Cohn, talking about why there could be a good case to raise the corporate tax rate, even a little bit above where they got to. So talking about that, and where this appetite for her to come in here, and actually start playing politics.

Because of course Fed Chair, as we know, not supposed to do that. But in her new role as Treasury Secretary, what do you expect as she steps into that role?

SHEILA BAIR: Well, I guess you could view that as a positive, not a negative, that she's not used to playing politics. But unfortunately, it is probably still something she's going to have to develop quickly. Look, I don't know where Mr. Biden is going to place his bets.

The first year will be crucial. It's typically, you know, you get most of what you're going to get accomplished in the first 12 to 18 months of the administration. I do think there is some bipartisan support, at least for tax reform, when people in good will can debate whether the corporate tax rate should have been reduced.

But one thing they didn't do is really close any corporate loopholes. And our revenues as a percentage of GDP, including our corporate tax revenues, are far below where other developed nations are. So raising rates may be hard, but raising revenue through loophole closing, I don't know if that's going to be that hard of a sell with the more moderate Republicans.

And first of all, he's [INAUDIBLE] policy, hopefully he'll pursue it. She also has the IRS. So tax enforcement, there's a lot of work to be done there. And again, they'll have to convince the White House to increase funding for the IRS budget, and get Congress to approve it.

But I think there's a lot she can do, in terms of advocating for the IRS, bringing attention to the need to just collect the revenues that we have, and the laws we have now, which we don't do a very good job of.

The IRS has been long neglected. And I'm hoping that she will also champion their important role as bringing in much-needed revenues right now. And that's another area where I think she could have an effect, and change course from what we've seen in the past.

- As we look to the expiration of the CARES Act, it does feel like we've really been in this holding pattern in Congress, with no real additional stimulus being passed. Janet Yellen, if you looked at some of the past comments, has made it pretty clear that she feels comfortable, especially with rates as low as they are, with going big on stimulus.

What do you think should be priority number one for her, in terms of steering this economy? You know, should it be the payments, or enhancing the unemployment benefit? Should it be about additional spending on infrastructure? How do you see those priorities breaking down for her?

SHEILA BAIR: Well, I think the immediate need is payments to households, whether it's continued unemployment, including expanding it to gig economy workers, supplementing it. Or I personally support another round of VIP funds as well.

Those are just the cash payments that went to households making below $150,000. The research shows that those cash payments had the best impact, the most beneficial impact on the economy. And it just makes sense. When you are a consumer-driven economy, you give cash to households, they spend it.

Especially lower income households, those that make less than $75,000 a year, I think spent like like, 80%, 85% of those funds were-- went to consumption. And that flows through the economy. They pay their bills. They put food on the table. They pay their rent.

They pay their property taxes. They pay their sales taxes. So that cash sentence-- cash assistance can have a nice flow through impact to other distressed parts of the economy. So personally, I hope that's where she focuses.

And it's also just, you know, household assistance is just not anything that the Fed itself is well-equipped to do. She knows that better than anybody, that their tools are geared towards capital markets, financial markets.

They don't really trickle down, except you know, if you've got a mortgage, you could re-fi. There are a few areas where it might help. But the people that are really hurting right now are the ones making $40,000, $50,000 a year. Probably don't even have a mortgage.

And if they do, they may be a subprime credit, so they can't qualify for the refinance. So there's a lot of reasons why low interest rates aren't falling down there. They really need cash help, not more net. That's what these households need.

- And Sheila, I mean, yesterday when we got the news breaking, you know, the market seemed to enjoy the news. And someone who wrote an op-ed about why treasury secretary was going to be President-elect Biden's most important pick here, I'm sure you might agree with me on this point, but it seems like people might be overlooking the added boost of having a treasury secretary that was previously a Fed chair, and also has a close relationship with Jerome Powell.

How important is it to kind of have that duo working together to get things done? We already know a lot of people consider Janet Yellen to be quite dovish, doesn't necessarily directly apply in her new role as treasury secretary. But do you think you might be overlooking how important that relationship might be in coordinating fiscal and monetary policy together to get the most out of whatever Congress passes?

SHEILA BAIR: It is important. The Fed and Treasury need to coordinate closely. And of course, we are increasingly blurring the lines between fiscal and monetary, that just may be inevitable. I'm hoping that a renewed emphasis on fiscal will shift our strategy more towards again, helping Main Street households. Because monetary policy is just not well-equipped to do that.

But there are areas where the Fed can, and should, and has been weighing in. And Secretary Yellen, future Secretary Yellen understands those tools. Yeah, she's got a past working relationship with Jay Powell. Interestingly, when his term expires, she may-- you know, traditionally the treasury secretary is the leading advisor to the president on who the Fed chair will be.

So she'll have a say in that as well. That might help as well with the relationship. But certainly, her past experience at the Fed, and the Fed staff like her, respect her. The governors, most of them have had past working experiences with her. So that will be a relationship that I assume will be well-coordinated to help the economy.

- Sheila, there's also the question about what banking regulation is going to look like. I'm looking at how the financials are trading today, up about 3 and 1/2 there. You've been quite critical about some of the rollbacks that we've seen in Dodd-Frank, under this administration.

How do you think Janet Yellen moves forward on that? Or more importantly, to how you think, how do you think she should move forward on it?

SHEILA BAIR: Right. Well, I'm pretty confident she will be more willing to use the tools she will have as chair of the Financial Stability Oversight Council. That's an interagency group of the major financial regulators that's charged with monitoring and addressing the systemic risk in the financial system. So I think the past administration has not wanted to use those tools.

I think she will want to. We saw a lot of disruption last March in the non-bank sectors. We didn't deal with that under Trump, or under Obama, frankly. Not even money market funds were fixed properly. And we saw their disruption again in March.

So I think she will step up and use those tools. And again, she's got so much stature with the other federal financial regulators, she'll have a lot of credibility to lead and navigate that.

Because it will require a coordinated action with both the bank regulators and the market regulators, the SEC and the CFTC. But she will be well equipped to do that. And I think she will make it a priority.

- Sheila Bair, the former FDIC chair and director of Volcker Alliance. It's good to talk to you. Thanks so much for your time.

SHEILA BAIR: Thanks. My pleasure.