Question: I remember a person, whom I believe was an economics professor at Columbia University, who during the financial crisis proposed that the government anchor their financial rescue strategy to the middle class homeowner, rather than government investment in 'too big to fail' commercial banks. Have you heard of any such proposal? Whatever became of it?

Paul Solman: Many many people have made this argument, Mr. Morrissey. Indeed, many continue to make it. We put the question of so-called "loan modifications" to the head of the FDIC just last week. (This was in a section that didn't make air.)

Paul Solman: Has the administration done enough on loan modification? On helping the homeowner?

Sheila Bair: Well, I think they're doing what they can do. They are looking, as we are now, as to whether more relief needs to be provided for folks who are having trouble with their mortgages because they've lost their jobs. When this started, it was the mortgage itself that was creating the problem - they were bad mortgages. They were unaffordable mortgages. So you could restructure them into an affordable product.

Now, if somebody loses their job, it's much more difficult to fix that through loan modification. But providing some lower payments or suspension for some period of time is something, I think, we should pursue. We try to encourage that in the loan modification programs we [at the FDIC] have as part of our failed bank sales. I think the protocol that they use now, which is one we developed at IndyMac, is really focused on the affordability of the payment.

PS: This is at IndyMac, which the FDIC took over.

SB: Right, IndyMac.

PS: The FDIC took over IndyMac, a California Bank and then -

SB: And started restructuring the stress loans, right [because] we then owned them...And we did that because it was also a good business thing to do. Because if we could restructure the loans and getting them performing again, we felt we could get a better price for them than if we just let them go into foreclosure. But that protocol was based on affordability. I think, now, some of these loans are so deeply under water that more has to be done in terms of principal reduction.

And that's harder because a lot of them are still on these securitizations. And the securitizations - they allow you to reduce payments through interest rate reductions or extending the amortization, which is what we did at IndyMac. Many of them prohibit though, prohibit the servicer from actually reducing the principal amount. [The servicer is one of the dozen or fewer major financial institutions that collect payments on mortgages - the company you and I make our payments to.] So that's a harder thing to do.

PS: So there's a mortgage.

SB: Right.

PS: It's in a pool. People own shares of the pool.

SB: Yes, yes.

PS: Then people even own shares of those shares.

SB: That's exactly right.

PS: And so you can't go to all of them and say, hey, wait a second, can we renegotiate this?

SB: Right. Well, that's right. Some of the servicing agreements, what they call the pooling and servicing agreements, do give servicers the ability to reduce principal payments. But most do not. So yes, you would have to go get all the investors to agree - the majority of the investors to agree, which would be hard to do.

Question: Who regulates the student loan industry to stop the practice of gouging young people with excessive interest charges added to their principal when they "defer" payment ...the govt doesn't pay the interest and the loans mushroom.

Paul Solman: As best I can tell, it's the Department of Education. The main initiative to stop the "gouging" is a bill proposed by President Obama in the spring, passed by the House in September, and now making its way through the Senate. It would make all student lending a direct responsibility of the Dept. of Education, rather than what we currently have: a private student loan industry that's federally guaranteed.

Question: The Bush tax cuts put billions in the hands of corporations and other businesses with the hope that they would create U.S. jobs, especially manufacturing jobs in the United States. Did this actually happen or did much of that money get used to create jobs overseas for cheaper labor rather than pay for expensive American jobs? And approximately what proportion of the tax cuts were used to create overseas jobs?

Paul Solman: Impossible to say. Just last week came this report from reporter Frannie Carr at Boston's main NPR affiliate, WBUR:

"A solar panel company that received $58 million in state aid to build its factory in Massachusetts is now moving jobs overseas.

Evergreen Solar is shifting some of its production, currently done at a plant in Devens, to China next year, after posting an $82 million loss in the third quarter.

Gov. Deval Patrick calls the move unfortunate, but says some of Evergreen's operations will remain here.

"I'm disappointed about the manufacturing," Patrick said, "but I'm delighted that they will continue to grow jobs in Massachusetts and they will be a part of our emerging clean tech sector."

Ian Bowles, secretary of the state Executive Office of Energy and Environmental Affairs, called Evergreen's decision disappointing.

State Sen. Mark Montigny is one of the lawmakers who said this proves what he's been saying all along, that the state should not be spending taxpayer money to woo private business.

"No one should be surprised," Montigny said. "Many of us have spoken very aggressively on the floor of the Senate against these boondoggles and they continue to happen. The biggest and most egregious right now are the billion dollars going to waste on the bio-tech industry."

About half of the 577 full-time and 230 contract employees at the Devens factory are involved in putting the panels together, but the company did not say how many jobs the state would lose."

So I hear (or read) a story like this and wonder: Would the company have closed down entirely without government investment? Been bought by a Chinese firm maybe? Shipped MORE jobs abroad?

Along these lines, an interesting proposal has been floating around for a few years from Ralph Gomory, a famous mathematician, longtime senior executive at IBM, president of the Sloan Foundation for many years (which gave the NewsHour a grant in his last year), and author of a book with the distinguished economist, William Baumol, Global Trade and Conflicting National Interests.

The idea; a tax break for U.S. corporations that create jobs here at home. Here's his most recent articulation of the proposal.

Question: Hi Paul. If it's going to take a "new thing," a la the Internet, to pull us out of the unemployment funk, what do you think it is ?

Paul Solman: When I receive a query like this, Hunter, I think to myself: Why don't I become an entrepreneur, push some alluring version of the "new thing," and cash in on my sem-quasi-celebrity? Then I remember that: 1) It would be wrong; 2) It probably wouldn't work; and, in answer to your question, 3) I have no idea what the Next New Thing will be and wouldn't be good at either developing or bringing it to market if I did.

Happily, there are uncountable numbers of people out there trying to invent the NNT even as I write. Many are in the alternative energy business, like a Frenchman I met a few weeks back at the B&B we frequented in Lisbon. Wood pellets (made of sawdust) for home heating is his game. Says it works wonders at his stove in Paris, and from what I saw of his family, they certainly seemed to have been well heated. You can even control the temperature by remote control, he alleges.

For all I know, there may have been an alternative energy entrepreneur checking into every hostelry in Europe that day. Or a biotech pioneer. Perhaps even a space travel visionary like Howard Bloom, author of the intriguing new book, Genius of the Beast. (Okay, there can't be that many astro-preneurs out there, but you get the point.)

In short, who knows the nature of the NNT? But you can be sure there are plenty of folks working on it. Will it usher in a new wave of prosperity? They forbid the following sentence on TV news, because it was already a cliche decades ago, but that's because it was always so apt: Time will tell.

Question: I have never understood why it would not have been more effective to have "bailed out" people directly, and banks indirectly, by giving money to people instead of banks.

The money would have necessarily have had to move through the banks, thus increasing cash flow, but would not have become bank property as it did, with which the banks could do anything they liked, as indeed they did, which did not actually "help the economy" in any way that I can see.

Meanwhile, they've done as little as possible to help people facing foreclosure. What have I missed here? How did simply improving the banks' balance sheets help any of the rest of United States, the Joe Blows?

Paul Solman: Remember, Tommie, how desperate the situation seemed a year or so ago. As I often wrote at the time, credence in the financial system was dissolving. The credibility of banks to pay back depositors (especially those with accounts beyond the insurance limits -- by far most of the money deposited by companies and the like) was on the line. And what about the credibility of credit itself? If those same banks couldn't come up with enough money to honor their debts, our credit cards might suddenly cease to work. Credence; credibility; credit: The entire system was perceived to be on the brink.

At that moment, how exactly would the government have bailed out the system by giving money to you, me, and the rest of us? How quickly? In what form? A lump sum to each family? How much for each? Suppose many of us DIDN'T put the money in the banks and just held onto it. Frankly, in the environment of the time -- and with banks teetering left and right -- that's what I might have done. Not you?

The solution to bail out the banks was one of desperation. That their creditors were thus rescued, and their executives and now even shareholders, to the extent their stock prices have come back, may be grossly unfair and perhaps unwarranted. But the phrases "too big to fail" and "too interconnected to fail" aren't used lightly. They reflect a consensus.

Editor's note: Ask and ye shall receive. We received some excellent and provocative questions for FDIC Chair Sheila Bair in response to our request here on the Business Desk. Thanks to everyone who contributed.

Paul sat down with Bair this morning at FDIC headquarters in Washington, and his interview appears on Friday's NewsHour.

Bair also answered seven questions from NewsHour viewers -- on topics ranging from the power of the banking lobby and what to look for to judge a bank's health to lessons learned from other countries' banking rules and the changing role of the FDIC.

We were particularly interested to hear Bair's response to a reader question on what she'd do differently in hindsight. Her response: She wished she'd dissuaded Treasury from using federal bailout dollars to prop up big financial institutions with capital infusions last fall, not least because of the thorny issues raised by government ownership of these banks and the public outcry that ensued.

Watch Bair's exclusive interview answering NewsHour viewers' questions below.

Paul Solman: We're interviewing Sheila Bair, head of the Federal Deposit Insurance Corporation, this Friday. And she's agreed to answer your questions as well as mine. Her answers will be posted here on the Business Desk in a special video.

So here's a rare opportunity: to ask the person who guarantees your bank deposits anything you wish. I'd make suggestions, but they would probably be questions I'll wind up actually asking myself. I therefore encourage you to come up with your own: on banking reforms, bailouts, you name it. It's your money (as deposits) that she's insuring, money that comes from insurance premiums the banks themselves pay. But since the government's guarantee is iron-clad, if the FDIC runs out of money, it will be replenished. And that too will be your money, as a U.S. taxpayer. Be bold. Be creative. And remember, there are no stupid questions.

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