Whether or not banks should have been bailed out is an unanswerable question. If/How they should be bailed out is an analysis that should be done on a weekly basis in case something like that happens again.

Interestingly, Elinor Ostrom, won the 2009 nobel price in Economics just as everyone was still in shock from the "too big to fail" bailouts where they merged the biggest failed banks into the biggest remaining banks - making them into "too bigger to fail" risks.

Elinor Ostrom essentially demonstrated that small organizations are inherently better managed than large organizations and better than central government management. Although her work focused on shared community resources, she believed the theory could directly be true of community vs. national banks.

In other words, big failed banks should have been broken up and parts given to community banks - account assigned to new banks by geography.

 

Intersting. Isn't interstate banking a relatively new phenomenon? When I was a kid (admittedly not recent history), all banks were small. Ish. The advent of the electronics and the internet made it hugely convenient to deal with big banks.

Now, the electronics would enable great bank service from even the small competitors.

 

Intersting. Isn't interstate banking a relatively new phenomenon? When I was a kid (admittedly not recent history), all banks were small. Ish. The advent of the electronics and the internet made it hugely convenient to deal with big banks.

Now, the electronics would enable great bank service from even the small competitors.

The argument was that local banks know the local economy and rumors of layoffs, arrears of local businesses (employers) and all the extra knowledge afforded by "boots on the ground". Local banks not only run a credit report on a mortgage applicant, they run a D&B report on the employer.

National banks tend to have nation-wide KPIs, focus on efficient loan application processes and were even offering zero-documentation mortgages in 2007. No credit report, no copies of recent paychecks, no bank balance summary, nothing.