This post from Ian Welsh is 100% correct. And the comments are great, too:
Bailing out banks, brokerages and so on in the way it was done had the following effects:
1) Fewer, larger financial institutions. Too bigger to fail.
2) Rewarding people for outright fraud and insane risk taking. Remember, they kept their bonuses and salaries, they are rich, even if they belong to one of the few companies that went under.
3) A huge overhang of bad debts which has to be worked off.
4) An understanding that financial profits are still the way, you, personally get rich.
5) Making the rich, richer (yes, they are richer now)
The reason the economy has not recovered and will not recover for at least a generation is because of the overhang of bad debt, the glorification of financial “profits” (they aren’t), the failure to de-financialize the economy and the confirmed control of government by the rich.
In other words the bailout caused the sucky “recovery”, or, if we are to be honest, the current long Depression.
The standard argument is “we had to do something”. Yes and no.
1) We could have done something else, like nationalizing the banks, making bondhlders and shareholders eat their losses, taking what remains and putting it in bad banks, then breaking the banks up and re-privatizing them.
2) Actually, if we’d just let them go under per the law, with the FDIC taking them over, things would have been worse initially, but there would have been an actual, robust recovery when it occurred. By now you’d be better off. And the shock could have been cushioned with generous EI, letting people stay in houses and so on.
The other reason that we are still stuck in this mess is because of the FASB accounting rules changes allowing banks to value their assets however they want, “mark-to-unicorn.” Which means, really, that if somehow the government were to become un-captured, and yes, I am now WELL into wishful thinking, it would still be possible right now to change the accounting rules back, force banks to re-state their balance sheets, determine that most of the TBTF banks are in fact insolvent right now, and do the right thing, as detailed by Mr. Welsh above.