this post was submitted on 05 Jan 2024
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It would be terrible for everyone involved, not just the economy but also for quality of life. Bailouts are bad, but not bailing out is worse. So what do we do? (Sorta) simple, legislation the prevents the amount of risks that banks are allowed to take. My proof is by counter example. The great financial crisis of 2008 was due to deregulation, mainly pushed by Regan era policy. Limits on banks force them to take their due diligence with each loan and decreases the risks of bubbles (crypto, housing, coins, etc.) forming in the first place.
Bailouts are worse. Whatever you subsidize you get more of, so if you subsidize financial mismanagement you get more of the same. It is called a preverse incentive a term I am sure your economics 101 class didn't mention for a reason. The same reason why preachers don't mention the stuff about Jesus saying to pay taxes.
It is better to let the banks fall, FDIC the accounts, and make sure the bankruptcy courts make recommendations to the AG office for criminal prosecution.
Besides which there was really no danger of AIG or Goldman folding. They lied about their financial situation. By the time it crashes they had moved all of their toxic assets into pension funds.