Prior to the government bailout of Bear Stearns and the demise of Lehman Brothers, Barr testified before the Senate Banking Committee for government intervention in the mortgage market.

In a hearing discussing the likelihood of a rash of foreclosures, Barr was asked whether he believed the government should create programs to save people's homes. "I don't think we can afford to wait," said Barr, who was working as a Brookings senior fellow and a University of Michigan professor at the time. "I think that the easy trap, in financial crisis, is to wait too long and do too little and watch the bad news dribble out, and not be on top of it."

"I think, if you look at the evidence of intervention in financial crises in the past, in serious financial crises, they are far more -- those interventions are far more successful if they're done rapidly and at scale, rather than dribbled out and slowly."

As bad bets on subprime mortgages crippled financial institution toward the end of 2008, Barr continued to testify before Congress. In the same congressional hearing where Bush Treasury official Neel Kashkari was asked by Rep. Elijah E. Cummings (D-Md.) if banks thought he was a "chump" for the way the Treasury had handled the bailout funds, Barr testified on ways those funds could be used to stave off foreclosures. Barr pointed out that the bailout legislation authorized the Treasury to "purchase troubled assets, including home mortgage loans."

Barr called for the Treasury to help stem home foreclosures by guaranteeing home loans to the "servicers" who controlled the subprime loans for mortgage-backed securities' investors.

In order to avoid liability and extra taxes, the servicers often foreclosed on those unable to pay their mortgages instead of restructuring the loans. Barr also called for the Treasury to allow the Federal Deposit Insurance Corp. to guarantee the loans and bolster the Federal Housing Administration, which needed more resources to aid in the foreclosure crisis.

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