This is a rush transcript from "Your World," September 25, 2012. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST OF "YOUR WORLD": I remember this like it was yesterday.
Four years ago today, America's financial system was on the brink. Presidential candidates John McCain and Barack Obama get called into the Bush White House for a very important meeting, at issue, bailing out the banks.
But was it President Bush driving that bailout? Few people had as much face time with the main players and both presidents during that ongoing financial crisis then my next guest, Sheila Bair, the former head of the Federal Deposit Insurance Corporation, better known as the FDIC.
She holds nothing back in a very revealing book that frankly I thought was going to bore me to tears. I told Sheila that. "Bull by the Horns: What Main Street Must Do To Fix Wall Street." Love her dearly, but I thought I was going to fall asleep reading this. I didn't because it crackles with horrible stories about powerful people.
CAVUTO: I'm kidding. You don't do that at all.
But I did go back and remember that and covering that, and covering you at the time. And I didn't realize all the behind-the-scenes stuff and the desperate anything that sticks stuff. What I do remember is a lot money we were throwing at this.
SHEILA BAIR, FORMER CHAIR, FEDERAL DEPOSIT INSURANCE CORPORATION: Yes, a lot of money.
CAVUTO: And you were the person in the room, I remember this then, and you expand on in your book, who was just saying, guys, hello? Hello? Time.
BAIR: Yes. Yes.
CAVUTO: They didn't.
BAIR: There was a lot visceral reaction.
And we didn't -- even today, I don't think we did enough analysis to know what we did, why we did it, was it really helpful, were there other we could have done that would have been better.
CAVUTO: Why was there this rush? The whole world was melting down, right?
BAIR: I think part of it, I think -- and it built up.
I think -- you know, I go back to Bear Stearns, the bailout expectation that was created. And with that that happened early in 2008 there wasn't a crisis at that point. And -- but there was never, I thought, a clear public explanation of why the government needed to intervene to assist a transaction, a sell of Bears Sterns to J.P. Morgan Chase.
It was a smaller investment bank. I didn't know why it was systemic. But I think that that just set up expectations that crescendoed. And then the market got confused and when Lehman went into bankruptcy...
CAVUTO: In other words, that one, we let go. The argument, that was worth letting go.
BAIR: Well, it was. And so -- and in fairness, there was no playbook for this.
CAVUTO: But if we had rescued Lehman, Sheila, do you think that we would have experienced the problems we did?
BAIR: Well, actually, I would just go back earlier and say I think Lehman could have been sold off if the leadership of Lehman hadn't had an expectation that the government would come in and rescue it, as it had Bear Stearns, because I think Dick Fuld felt, well, Bear Stearns was smaller and less important than Lehman. How could they help Bear Stearns and not help me?
CAVUTO: And that changed people's views that the government is the backstop.
BAIR: It changed the expectations.
CAVUTO: Now, this is where Geithner came in.
CAVUTO: In the beginning, a New York Fed president, later on, the treasury secretary for Barack Obama. And I didn't realize there was a lot more fixation and worry at the time about Citigroup than there was, later, justifiably, over Bank of America and all it was taking on.
BAIR: Right. Right. Right.
CAVUTO: Explain that.
BAIR: Well, it was.
And we were not -- we learned in spoon-sized doses how bad -- we knew Citi wasn't in great shape. They'd had several quarters of losses, but I don't think we had full appreciation of just how sick it was until we got towards the end of 2008. They were -- their counter parties were running. They relied a lot on uninsured deposits that were not insured by anybody...
BAIR: ... foreign countries.
CAVUTO: So, they looked bad? Worse than Bank of America?
BAIR: Oh, definitely.
I mean, B of A got into trouble later on, and Bank of America was in trouble for -- well, if B of A had a problem, it was Merrill Lynch. It was not Countrywide. Later, Countrywide...
CAVUTO: And they merged those two.