"This might be a 'Nixon to China' moment for Secretary Geithner," she said. "He could more aggressively engage the Wall Street community and the financial sector in particular to ante up a little bit more."
She suggests getting rid of the preferences for investment income as a part of any solution to the country's fiscal crisis.
Bair, who has been highly critical of Geithner's support for bailing out Citigroup during the financial crisis, said, "I hope Tim will view this as a moment to dispel critics like myself and show independence from these guys and engage them and come up with a plan that makes sure they share a little bit of the pain, too."
(Read More: Geithner Was 'Bailouter' in Chief During Crisis: Bair.)
The former FDIC chairwoman was also critical of the Federal Reserve's easy monetary policy and said it may be time to allow bond yields to tick up a bit.
"We're just reflating an asset," she warned. "This time it's bonds not housing, and that's not a sustainable model." She said the country is in a "big bond bubble."
The economy needs real structural reform, she said, like job retraining, infrastructure repair, a cleaner tax code and entitlement reform. "Those are the things our president and Congress have to do. The Fed can't do it," Bair said.