5 Questions with FDIC expert Eugene Ludwig

— -- Eugene Ludwig is a former Comptroller of the Currency and former board member of the Federal Deposit Insurance Corp., where he oversaw the Resolution Trust Corp. during the savings and loan crisis two decades ago. He's now CEO of Promontory Financial Group, which offers products and services to banks and other financial firms.

Q: How does the nature and scope of the current crisis compare with the S&L crisis you helped resolve?

A: This problem is much, much larger. It's been allowed to fester for so long that we're dealing with a crisis that makes the S&L crisis look like a peanut. We've already appropriated $700 billion, and it's not going to be enough.

Q: How much do you think the financial system rescue will ultimately cost, and how long do you think it will take to determine whether it works?

A: Trillions of dollars, certainly if you count the (federal economic) stimulus. And it will take one to three years. One year is optimistic. At the end of the day, how long it takes will depend on what the new Obama government does. I feel they will take the right steps.

Q: Do you think Troubled Assets Relief Program funds should be used to help non-financial sector industries such as automakers?

A: That's certainly part of what Congress intended. The key thing here is we have got to show compassion. The people who are building the cars, the people who are losing their homes, the people who are going to be affected — they didn't cause this problem. We owe it to them to show a great deal of compassion. And if we help them out, we're going to help the economy out, and we're going to get the economy started again.

Q: What's the most important lesson financial regulators should draw to avoid future crises like this?

A: They've got to be tougher in good times. In this case, they allowed the party to go on too long. What a regulator's job is, it was once said, is to take the punch bowl away just as the party gets going. And that's what they didn't do.

Q: What do you think of the agreement to shore up Citigroup?

A: The outlines of what they're proposing for one bank is in essence what they ought to be doing for all banks. They're taking on the responsibility of the bad assets while putting in some capital. The only thing I haven't seen yet, but I think it will emerge, is they're going to work hard to keep people in their homes.