FDIC chief: End plan needed
Bair says bailout could be 'crutch'
WASHINGTON - The head of the FDIC yesterday said the government needs to devise an "exit strategy" for its massive financial rescue plan to avoid artificially propping up banks and other institutions long term.
The Federal Deposit Insurance Corp.'s chairwoman, Sheila Bair, made the comments at a conference of corporate executives. Her agency has played a key role in the financial bailout, guaranteeing potentially as much as $1.4 trillion in debt issued by banks and raising the limits on deposit insurance for bank accounts.
But Bair has broken with the Bush administration by repeatedly saying more aggressive government action is needed to help millions of struggling home borrowers avoid foreclosure.
"I'm a capitalist. I believe in markets," Bair said in response to questions at the conference, sponsored by Fortune and Time magazines.
The far-reaching government guarantees extended under the rescue program - now including $250 billion set aside for the Treasury to buy stock in US banks, hundreds of billions in aid to giant financial institutions, and hundreds more billions in special lending facilities to banks - must be carefully assessed, Bair said.
"We really need to think through the exit strategy because [government guarantees] could become a crutch," she said. Weaker financial institutions "need to be allowed to fail."
The government needs to decide which banks and other institutions receive the financial support, and eventually, "How do we get out?" she said.
A Treasury Department spokeswoman declined to comment on Bair's remarks.
The potential cost for the government's efforts to contain the financial crisis now approaches $7 trillion and is climbing. That figure includes large commitments of funds by the government to guarantee certain debts, although those funds might never actually be spent.
The cautionary remarks by Bair, an independent regulator, were similar to comments made by some banking industry representatives in mid-October, when the government's rescue programs were rolled out.
Bair, who describes herself as a moderate Republican, has garnered support from Democrats for her position on mortgage foreclosure relief. Democratic leaders in Congress have endorsed her proposal to use $24 billion in government bailout funds to help 1.5 million borrowers avoid foreclosure by guaranteeing modified home loans through the end of next year - a move opposed by Treasury Secretary Henry Paulson and the Bush administration.
"We continue to have discussions" on the issue, Bair said yesterday. 