How would the last three years have played out if Bear Stearns had been allowed to fail? While we can speculate about that topic we will obviously never know.

Who believes the Bear was nothing more than a second tier investment bank and should have been allowed to fail? The recently departed head of the FDIC, Sheila Bair.

I just finished reading her exclusive exit interview with The New York Times’ Joe Nocera. This article is a MUST read.

A few particular highlights include:

1. Just a few months ago, she went so far as to send a letter to Standard & Poor’s, the credit-ratings agency, suggesting that its ratings of the big banks were too high because they reflected an expectation of government support. If a too-big-to-fail bank got into trouble, she wrote, the F.D.I.C. would wind it down, not bail it out.

2. As Paulson, Geithner and the Federal Reserve chairman, Ben Bernanke, raced to bail out banks and companies like A.I.G., Bair resisted, fearing that they were being overly generous by putting the interests of bondholders over those of taxpayers.

3 Bair, however, has always thought there were other reasons behind the general resistance to modifying mortgages. The government, she said, “thought maybe I was overstating the problem and that it wasn’t going to be that big a deal.” As for those in the industry, she added: “I think some of it was that they didn’t think borrowers were worth helping. There was some disdain for borrowers.”

4. “They always had the view that the F.D.I.C. was not in the same league as Treasury and the Fed,” she told me. “As a result, we were rarely consulted. They would bring me in after they’d made their decision on what needed to be done, and without giving me any information they would say, ‘You have to do this or the system will go down.’ If I heard that once, I heard it a thousand times. ‘Citi is systemic, you have to do this.’ No analysis, no meaningful discussion. It was very frustrating.”

5. “I’ve always wondered why none of A.I.G.’s counterparties didn’t have to take any haircuts. There’s no reason in the world why those swap counterparties couldn’t have taken a 10 percent haircut. There could have at least been a little pain for them.”

6. “ You know, Wall Street barely missed a beat with their bonuses.” “Isn’t that ridiculous?” she said.

7. What particularly galls her is that Treasury under both Paulson and Geithner has been willing to take all sorts of criticism to help the banks. But it has been utterly unwilling to take any political heat to help homeowners.

8.“I didn’t start off being assertive and going public with concerns,” Bair said as our second interview was winding down. “But we were being ignored, and we had something to bring to the table. There’s been speculation: maybe it was gender or that I’m not an Ivy League person. It could be; everybody has their biases. But I found I had to become assertive when they just wouldn’t listen.”

WOW!!! I love it. Little doubt here that Bair is addressing the widely held belief that the Ivy League crowd possesses and displays an arrogant and elitist mentality. (Larry Summers, MIT and Harvard; Tim Geithner, Dartmouth; Hank Paulson, Dartmouth, Harvard MBA; Ben Bernanke, Harvard and MIT; Barack Obama, Columbia and Harvard Law)

9. “We always saw ourselves as the champion of the little guy,” she continued.

I may not agree with every position put forth by Sheila Bair but I do find myself agreeing with a LOT of what she has to say. Additionally, I believe she genuinely cares and is not held hostage by the Wall Street-Washington incestuous mentality.

Please read and share Joe Nocera’s fabulous interview with Sheila Bair, entitled Sheila Bair’s Bank Shot.

America needs more people like Sheila Bair.

I welcome inducting Joe Nocera into the Sense on Cents Hall of Fame; additionally, I am happy to elevate Ms. Bair into the upper echelons of the Sense on Cents Hall of Fame.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

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