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The FDIC was created in 1933 to stabilize the banking system after depositor runs forced thousands of banks to close during the Great Depression. It has since done for for more than 70 years. Sheila Bair had worked as legal counsel for Senator Dole, commissioner and acting chairman of the CFTC, and headed government relations for the NYSE prior to being asked by Bush II to take the lead at the FIDC in 2006. At the time it employed about 4,500 and had a billion-dollar operating budget; in 1995 the staff totaled 12,000 - partly necessary and partly the result of the deregulatory dogma that infected Washington and led by luminaries such as Alan Greenspan and Robert Rubin. Ms. Bair soon became one of the first to war of the risk of sub-prime loans; her 'Bull by the Horns' provides unique insight into the greatest financial crisis the U.S. faced since the Great Depression. In mid-October, 2008, Treasury Secretary Paulson persuaded nine major bank CEOs representing about $9 trillion in assets to go along with a $125 billion TARP bailout. Bair's opinion was that only Citibank needed the help - that the big program was simply a cover-up to shield it from more focused public glare. (Citi ultimately required three bailouts.) Previously she had derailed Geithner and Citibank CEO Pandit's plans to buy Wachovia with financial assistance from the FDIC, instead supporting Wells Fargo's acquisition w/o government assistance. Her opinion was that the last thing the FDIC needed was two mismanaged banks merging. Pandit had gotten the position via support from Robert Rubin - formerly he'd been a hedge fund manager with a mixed record and knew little about banking. Later, under Geithner, came the large-bank stress tests. Again, Bair contends this was primarily a means to help cover-up special help to Citibank, as well as just a ruse intended to allow rule manipulation for other banks that should have been disciplined by the market. Bair isn't shy offering her opinions about the rest of the leading bankers at that meeting. She saw Ken Lewis, head of BAC, as lacking deal-maker skills - he'd overpaid for Countrywide and Merrill Lynch. The smartest - Jamie Dimon, CEO of J.P. Morgan Chase. John Thain, new Merrill Lynch CEO, earned Bair's disdain by worrying about restrictions on executive compensation. As for Tim Geither - she saw him as 'a tool' of the big banks. As for the bailout - Bair would have preferred to impose discipline on those needed it by firing their managers and boards, and forcing them to sell their bad assets. AIG, Lehman Brothers and Bear Stearns were badly managed, per Bair. (She did agree with the AIG bailout, though saw it as overly generous - all of its counter-parties received 100%.) Bair believes we should downsize our megabanks, and notes that PE ratios for the 'supersizers' (Citigroup, Bank of America, and J.P. Morgan) are considerably lower than their more focused rivals such as Wells Fargo and U.S. Bancorp. As for the Dodd-Frank Wall Street Reform Act enacted in July, 2010, she wonders why nothing much seems to have changed. We've since had MF Global's bankruptcy, J.P. Morgan's 'London Whale' losses, Barclay's rate fixing, and Peregrine Financial's fraud. We're still believing the 'self-correcting' markets mantra, that financial institutions will do the right thing despite the opportunity to line their pockets doing the wrong thing. Instead of regulators just saying 'No,' they try to placate lobbyists by creating clarifications and exceptions, resulting in indecipherable rules that are hundreds, even thousands of pages long. These rules then serve a competitive barriers that keep out smaller institutions that cannot afford the legal help to decipher them. The lobbyist who sought all these clarifications and exceptions then ridicule the regulators for drowning the industry in red tape. On Bernanke's maintaining interest rates at or near zero, she notes we've had interest rates at or near zero for four years - even though the financial system has been relatively stable since 2009. This will create a bond bubble. The biggest beneficiaries - profligate elected officials who refuse to come to grips with budget deficits and an exemption-laden tax code. To those arguing that Japan has kept rates low while running up huge debts, she points out that it enjoys a trade surplus and its debt is held domestically. We have persistent trade deficits and foreigners hold over half our public debt. Bear Stearns should have failed, not given to Jamie Dimon as a Christmas present. Bair and the FDIC made three attempts to have mortgage relief provided for homeowners as a means of preventing massive defaults and lowered home values. She begins this topic by explaining some of the legal complications. The process is made more complicated by securitization - separating those that owned the mortgages from those responsible for restructuring them. Modifying mortgages can be a time-consuming process that the processors weren't paid extra for; worse, the servicers were required to continue advancing mortgage payments in the event of a default until foreclosed. Perhaps worst of all, any negotiated reduction in payments would be shared among all tranches, whereas a default only hit those holding the bottom tranches - thus, those in the upper tranches were likely to sue to prevent modifications. Bair attempted to have monies, first from TARP, then other sources, to overcome this opposition. However, a combination of foot-dragging by Hank Paulson and then Tim Geithner, combined with some demagoguing from the industry and bureaucratic requirements from Treasury, delayed and then hamstrung her efforts. Only about 500,000 were helped, instead of the 3-4 million targeted. Bair's recommendations: Raise bank capital requirements, maintain the Dodd-Frank ban on bailouts, break up the overly-complex banks (some of the biggest), require an insurable interest for credit default swaps, abolish the OCC, combine the SEC and CFTC, abolish Freddie and Fannie, stop subsidizing leverage (via capital) via the tax code, tax earned and investment income at the same rate, and reduce the national debt.