WASHINGTON — It was at an investor conference in October that Sheila C. Bair made her stand.
With home foreclosures soaring and signs that the sub-prime mortgage fallout threatened the broader U.S. economy, Bair, who runs the Federal Deposit Insurance Corp., called for a sweeping effort to restructure shaky loans, including those held in securities owned by Wall Street players.
Many investors opposed such measures, and the White House resisted taking a major role in fixing the mess.
No matter. "More needs to be done -- and done sooner rather than later," Bair told an unfriendly crowd at the Marriott Marquis hotel in Manhattan. "The trick now is getting all the actors working together, from Main Street to Wall Street to Washington."
Two months later, Washington was on board. President Bush and others embraced an initiative to rework hundreds of thousands of troubled mortgages under a plan based on Bair's proposals.
Since then, Bair has seen herself portrayed as the consumer champion within a very business-oriented administration, a once-obscure regulator who has landed in the center of what may be the nation's biggest financial problem.
The 53-year-old Republican acknowledges the "perception" that she may be more attuned to consumers than some others in the administration but says she is definitely a member of the team.
"I do consider myself pro-consumer," she says, "but I think the other regulators are also sensitive to these issues."
There's no debate about Bair's pivotal role in recognizing problems in the sub-prime mortgage industry and influencing the response of policymakers.
"Earlier than other administration officials, she was sounding the alarm," says Howard Glaser, an industry analyst and former U.S. housing official.
Bair says she understands that many Americans believe it's unfair for the government to help borrowers who knowingly took on loans that later proved unaffordable. But she says the problem has become so big that it affects more than just those borrowers.
"Even if you don't have sympathy for the borrowers, have sympathy for the neighborhoods and the communities," she says. "There are not a lot of good options here. We just have a very bad situation, and people needed to make some decisions."
Friendly and straightforward, Bair has won points on Capitol Hill with her nonconfrontational approach. When Rep. Maxine Waters (D-Los Angeles) told Bair at a hearing, "I don't think we should give up on the idea that we can do better" than a five-year mortgage interest rate freeze, Bair simply said there was no way around it.
"Washington is about compromise," Bair replied. "We got some people's attention with that [permanent freeze] proposal, but after further conversations, five years was where we could get agreement."
Waters, no fan of the Bush administration, didn't press the matter further.
Bair is well-acquainted with mortgage issues. After five years as an executive with the New York Stock Exchange, she joined the Treasury Department as an assistant secretary in 2001 and focused on questions about the growing trade in sub-prime loans. Back then, she urged sub-prime lenders to agree on a set of "best practices" to prevent abuses.
"This is somebody who was focused on the mortgage issue long before the real bubble had built up," says Ellen Seidman, a financial policy expert at the New America Foundation and former head of the Office of Thrift Supervision.
Then came the Sept. 11 terrorist attacks, and Bair switched her focus to security issues.
In 2002, she left the administration for a stint in academia, teaching financial regulatory policy at the University of Massachusetts at Amherst. She wrote a children's book about money: "Rock, Brock, and the Savings Shock." In it, a grandfather gives twin brothers $1 a week as a lesson in handling money. One of the brothers squanders the cash. The other saves wisely and in the end is able to buy a telescope and gifts.
On June 26, 2006, she was sworn in for a five-year term as chairwoman of the FDIC, an independent agency charged with insuring certain savings accounts, regulating state-chartered banks and helping maintain the stability of the banking system.
She quickly grew concerned once again about sub-prime loans. "We were really astonished" at the weak standards, she says. Research suggested that many sub-prime borrowers whose loans were set to explode in cost could have been steered into safer, fixed-rate mortgages.
As months passed, and foreclosure statistics worsened, there was little sign that lenders and investors were cooperating in large numbers to ease the problem. In particular, Bair wanted to help people who had kept up with their payments and lived in their homes but wouldn't be able to pay when their mortgage rates reset much higher.
For months, she pushed the administration to facilitate efforts by lenders to rework loans on a "fast track" basis, easing terms for broad categories of loans, rather than painstaking, case-by-case determinations.