Well… It is about time someone in Washington decided to use their brain for once. Sheila Bair tells it like it is. Sheila, please keep spreading the word: NO MORE TAX PAYER MONEY FOR THE BANKS.

FDIC head: gov’t rescue plan needs ‘exit strategy’

FDIC Chairman Sheila Bair says government’s financial rescue plan needs ‘exit strategy’

WASHINGTON (AP) — The head of the FDIC said Tuesday the government needs to devise an “exit strategy” for its massive financial rescue plan to avoid artificially propping up banks and other institutions over the long term.

Federal Deposit Insurance Corp. Chairman 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 U.S. 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,” Bair added.

The government needs to decide which banks and other institutions receive the financial support, and eventually, “How do we get out?” she said.

Treasury Department spokeswoman Jennifer Zuccarelli 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 may never actually be spent. But still, the overall figure reflects the huge liabilities the government is taking on in response to the meltdown.

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. They suggested it could be difficult for banks to wean themselves off federal debt guarantees when they expire in 2012.

Bair, who describes herself as a moderate Republican, has garnered support and kudos 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” with the Treasury Department on the issue, Bair said at the conference Tuesday. The FDIC also has briefed the transition team of President-elect Barack Obama on the proposal, she added.

“I’m hopeful that the current or future administration, or perhaps some combination of both” will be able to adopt such a plan in hopes of preventing some additional foreclosure distress, she said.

Bair’s name had been floated as a possible Obama choice for Treasury secretary. But the president-elect last week designated Timothy Geithner, the president of the New York Federal Reserve, for that position.

Bair, whose term extends to 2011, reaffirmed Tuesday that she is “quite content where I am.” She has pledged to work with the incoming Obama administration in whatever role they desire for her.

A recent rescue move for banking titan Citigroup Inc. called for a fresh injection of $20 billion of government funds into the company, as well as for the government to shoulder the potential risk on hundreds of billions of dollars of soured assets.

Under the plan announced Nov. 23 — hammered out in marathon discussions led by Paulson and Geithner and in which Bair also participated — Treasury and the FDIC will guarantee against the possibility of big losses for Citigroup on up to $306 billion in high-risk loans and securities backed by home and commercial mortgages.