The head of the Federal Deposit Insurance Corporation says the government’s $700 billion rescue package will help stabilize financial markets, but doesn’t do enough to help homeowners facing foreclosure.

Sheila Bair didn’t single out any government officials, but her criticism covered decisions made by Congress and the Bush administration.

“Why there’s been such a political focus on making sure we’re not unduly helping borrowers, but then we’re providing all this massive assistance at the institutional level,” Bair told the Wall Street Journal. “It’s been a frustration for me.”

Bair was nominated by the White House and confirmed by the Senate in 2006. She has frequently said industry efforts to prevent foreclosures aren’t doing enough to help homeowners. She’s defended her focus on consumer protection for the FDIC, which is charged with protecting bank deposits.

“I support all the measures,” she said. “I’ve been a part of all the measures that have been taken. But we’re attacking it at the institutional level as opposed to the borrower level, and it’s the borrowers defaulting. That is what’s causing the distress at the institutional level. So why not tackle the borrower problem?”

Defenders of President Bush’s rescue package say going after problems in the banking industry, especially the loss of public confidence, is the government’s responsibility. Officials say freezing up of many financial markets threatens consumers and businesses by choking credit needed to keep the economy moving.

“We just did a massive bill that does a lot for homeowners,” says Tony Fratto, White House spokesman. “You are always going to have different views on some specifics on policy. But I think we’re all trying to pull in the same direction.”

The credit crunch is more than a year old and it’s difficult to understand where we are unless we know how we got here.

Minyanville Professor Satyajit Das says the rescue package for Fannie Mae (FNM) and Freddie Mac (FRE) represented the triumph of hope over knowledge. Worse, the package may be inadequate.