FDIC Chair Sheila Bair tells the Wall Street Journal that the administration's bailout plan is inadequate. Bailing out the big banks is necessary, she says, but "it's the borrowers defaulting. That is what's causing the distress at the institution level. So why not tackle the borrower problem?" Bair wants a "bigger focus on homeowners."

Such a public criticism coming from one of the key government officials overseeing the bailout seems rare enough. But Bair has been similarly outspoken before. She's been pushing since this spring for government intervention in the mortgage crisis. And this summer, she told Bloomberg news that government officials saw the subprime crisis coming as early as 2001. "I think there could have been" something done, she said.

Back in 2001, Bair worked as Assistant Secretary for Financial Institutions at the Treasury Department. While there, she said, she worked with Ned Gramlich, a governor of the Federal Reserve, to study subprime mortgage issues. "And we saw some very troubling aspects of how loans were being originated, the features of the loans, the abusive pre-payment penalties, a lot of flipping, you know, these serial refinancings."

Gramlich and Bair pushed for "a more aggressive regulatory or legislative response," she said. The Treasury had determined the Federal Reserve was the only governmental agency that had the authority to tamp down the loose lending practices. "So there was a recommendation at that time for the Fed to have across-the-board lending standards applied." (Alan Greenspan was Fed chairman at the time.)

But Gramlich and Bair got nowhere. Why? As Bair told Bloomberg:

"Everybody was making money... everybody was getting something out of this which I think meant that we didn't have the political will, the popular outcry, to get something done. And, yeah, in hindsight, actually, I think the bank regulators should have done more to step up to the plate, to raise their hands, and say, you know, this has got to stop."

She continued: "And I think if there's a good strong lesson plan going forward, it's the markets need basic rules. And the basic rules here will, you know, make a loan that the borrower can repay."

As for Gramlich, he served on the Fed through 2005 and died late last year -- but not before publishing "Subprime Mortgages: America's Latest Boom and Bust" last summer. As the Washington Post noted in his obituary, Gramlich was "among those who wanted to tighten regulation of high-cost home loans long before the current panic set in."