There are no good answers here. But pointing fingers and assigning blame is for sure one of the worst ways to do the analysis.
I agree that there aren't any "silver bullets", but I think there are some decent pieces of regulation like, forced splits between investment banking and commercial banking, and heavy regulation of high risk markets, especially when it comes to inclusion in retirement funds etc.
Those aren't going to single-handedly solve the boom bust cycle, but they are amongst other similar policies, a bunch of levers than governments can use if they want to in order to shield the public from risks caused by financial speculation.
At scale, this boats sink somewhere, not disappeared into the void. And yeas, markets are not zero sum, amount of goods may increase and may decrease, and we should let agents that decrease them fail.
> “A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008…”
Letting Lehamn fail was the right call, because it allowed the Fed to bulldoze TARP through and save the wider economy as a result. If anything, I would say the subsequent bailouts were too generous in letting the companies retain controls and returns; the government should’ve kept a permanent, partially-nationalized control of those shares and added them to a sovereign wealth fund instead of selling them back on the market. “You fucked up so bad the entire system almost failed, so clearly you cannot be trusted to self-govern” should’ve been the unambiguous messaging from the Fed.
Yes, obviously, the subprime crisis was long in the making and has deep root causes. But the bank runs of 2008 and the frozen global financial system were 100% preventable, as they were a confidence shock (not a fundamentals thing) stemming from the sudden uncertainty due to Lehman.
A little assistance from the Bush administration in 2008 would have very plausibly produced a much softer landing and required a lot fewer bailouts overall. This really isn't controversial.
"Let them fail" is almost always the worst thing to do.
Because it was a mess. Compare it with the bank failures in 2023. Shareholders wiped out, multiple collapses, yet many people have forgotten it even happened.