According to Sheila Bair, former head of the FDIC, the reason that the banks didn’t collapse during the financial crisis was not, as the present wisdom would suggest, because of swift and prudent government intervention, first by the Bush Administration and subsequently by the Obama Administration, but because they were never in any real danger of collapsing.
Excerpts from her book. Get them while they’re hot.
The reason that the Bush and Obama Administrations leapt into the fray was political damage control. They didn’t want to take the risk that the banks would collapse on their watch and they’d get blamed for it. If they didn’t collapse and they did intervene, they’d get credit for it. That’s a formula for ever-increasing intervention.