The biggest mistake was allowing the banks to survive untouched. By buying toxic assets, the US government became the primary customer eliminating the need to look for business. Government is a market segment. We made the banking system serve the government by having them sell to it. Getting book value on assets made better sense than risking capital for more complex transactions in the consumer or commercial markets. Now it is too late. We should have taught them to fish again, but we gave them supper.
If they were too big too fail, it doesn't mean they were too big to fail later on. I wonder what would have happened if the lower interest rates would have been given only to smaller banks to take on the giant banks. The big ones didn't lend anyways. At least it could have produced the debacle of the ones meant to fail plus the raising of a new breed simulating competition while diminishing the impact. Talent jumps ship anyways. But the smaller ones don't have the lobby capacity only the regulator's scrutiny. A new breed could make the regulation easier by growing with the new rules. Now we are left with regional and small banks failing while the big ones are sitting on their balance sheet with their new gargantuan ingestion of failed banks who continue to survive inside a bigger umbrella.
