against efforts to impose too many restrictions on the bailout structure.

"The risk isn't in giving Treasury too much authority but in giving it too little," he said. His remarks seemed to take aim at the concern raised by lawmakers and others that the bailout--proposed by U.S. Treasury Secretary Henry Paulson--is too vague in setting out how much power the federal government would have in buying up the securities.

Bair said that the federal government needs flexibility in the bailout, and that getting the illiquid securities off institutions' balance sheets is the priority in order to stabilize the availability of credit. But the legislation should nevertheless make troubled home owners part of the equation too by including standards through which financial services companies can restructure the mortgage loans of individual borrowers.

"The proposal doesn't have a loan restructuring plan," she said.

Panelists had a lot of questions about the process Treasury would use to set the value for and then buy the securities, a task made complicated by the level of uncertainty in the market over what they're worth.

If the agency tries to maximize taxpayer value by valuing the securities as low as possible, financial institutions are unlikely to participate and the credit crunch will persist. If the values are set too high, taxpayer money could be put at risk if down the road the securities never command the value that Treasury paid for them.

When all is said and done, and the immediate credit crisis is addressed, the federal government will need to take a hard look at the entire "shadow banking" industry that caused the crisis in the first place.

This industry--hedge funds and other Wall Street conduit lenders that package and channel the mortgage-backed securities to global investors--has been largely unregulated and until this point that's been their big attraction. With none of the oversight that banks are under, they've been able to create and market the highly complex securities that have been such a big draw to investors.

Should the government clamp down and impose on them banking-type regulations, their flexibility to innovate will be constrained, potentially spelling an end to the strong capital flows that the mortgage industry has enjoyed in the last decade.

Summers says it would be a mistake for the federal government to try to set standards that would reduce the likelihood of individual Wall Street companies from failing. That would only end up creating a environment in which innovation is curtailed.

The better approach is to create a system in which companies can fail without bringing the larger system down with them. Right now, as the Lehman Brothers failure showed, no such system is in place today, so when a big player falls, the entire system is at risk and massive federal intervention is needed.