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Sheila Bair, the former head of the U.S. Federal Deposit Insurance Corporation, says the bailouts of America’s largest banks should have never taken place.
Bair -- who served at the head of FDIC from 2006 to 2011 -- calls the move the most "distastefulthing" she has ever done in her public life.
"We were providing assistance to a lot of institutions who had done dumb things and contributed to the problems and then here we were bailing them out," she tells BNN on the heels of releasing Bull By The Horns, a tell-all book about the controversial bailouts.
Admitting that she is a proponent of "free markets,” Bair says the bailouts skewed the market in favour of financial institutions.
"I like markets when they work efficiently I think it is a very good system, but markets don't work unless you impose accountability and losses on people who makes mistakes and take stupid risks," she says.
Bair adds that while many supporters of the bailouts say the government is now earning back some of the money it piled into the banks at the height of the crisis, the true costs of bailouts are "terrible."
"The terrible damage to the economy, to our fiscal problems, all the people who lost their jobs, who lost their homes, who lost their wealth with their investments and their savings, the moral hazard that was created by this and the public cynicism -- the respect for government is so low and that's partly because people very much resent the bailouts…and they think the game is rigged for the big guys and the little guys have to defend for themselves," she says. "The reputational damage and the true costs to the economy are horrible."
Ultimately she believes that the banks convinced regulators and the public that bailing them out was good for the U.S. economy – a sentiment she strongly disagrees with.
"I think this idea that's what good for the big banks is good for the rest of us is just not true," she says. "Their interests and our interests are very different."
She also says the U.S. government missed an opportunity when the crisis had subsided to impose losses on bondholders and banks -- choosing instead to provide further bailouts.
"Even in 2009 once the system had stabilized there were some opportunities to impose losses on institutions, fire boards and management and impose some personal accountability, we just didn't do that, we just continued the bailout policies," she says.