"The issue is whether it's an appropriate use of [Treasury bailout] funds or not, we think it is," Bair said in a breakfast speech hosted by the Johns Hopkins University Carey Business School. "We think it's a good investment and so we are meeting with both Congress and the Secretary of the Treasury on that still."
When asked about resistance from Treasury Secretary Henry Paulson, Bair said: "We have a great working relationship and I'm still talking with him. So, still hopeful."
Bair also referred in her remarks to Wednesday's steep plunge on Wall Street, saying, "At the market level as well, we need some longer term thinking. We need to get back to basics."
"I'm very concerned ... with what happened in the markets yesterday," she said. Bair said she feared that investors may be "transitioning from an irrational exuberance to irrational despair. There was a lot of overreaction in the market yesterday."
By the end of the year, foreclosure listing service RealtyTrac Inc. expects more than a million bank-owned properties to be on the market, representing about one-third of all properties for sale in the U.S.
The one thing government is not doing to deal with the economic crisis is foreclosure relief, Bair said, adding she was afraid of sounding "like a Johnny one-note."
Such action would help stabilize home prices in a housing market that Bair fears is starting to overcorrect. "If there's one thing the government has to do it's tackle these unnecessary foreclosures," she said.
Falling home values have been a significant drag on the economy and it made sense for her agency to protect the value of homes on which banks are lending money, Bair said.
The FDIC chairman has broken with the Bush administration in calling for using $24 billion of the bailout money to help Americans at risk of losing their homes. House Speaker Nancy Pelosi is urging Paulson to support the FDIC plan.
Federal Reserve Chairman Ben Bernanke told lawmakers earlier this week that in cases of some home loans, the FDIC plan could be costly but is still a "very promising approach." While resistant to using bailout money to provide mortgage guarantees, Paulson has said the administration will look for ways to provide foreclosure relief.
As part of the government's financial rescue plan, the Federal Deposit Insurance Corp. is providing insurance for loans between banks for more than three years, guaranteeing the new debt in the event the issuing bank failed or its holding company filed for bankruptcy. The guarantees under the program, aimed at breaking the crippling logjam in bank-to-bank lending, could reach as much as $1.4 trillion.
The FDIC's board is scheduled to formally approve the plan on Friday.
Paulson defends changes in bailout strategy
FDIC wants to boost deposit limits
