Sheila Blair - who advocated for refiancing home owners mortgages rather than bailing out the Big Banks has a recent interview where she reflected on the 2008 financial crisis from 10 years of perspective. I wanted to quote it in full since it's very informative.

We just reinforced too-big-to-fail with all these bailouts. Other than Lehman Brothers, nobody took their medicine. Restructuring Citigroup would have sent a signal; it would have imposed greater market discipline. We should have at least subordinated debt holders and made them take some haircuts and convert their positions in equity: truly force them to shed bad assets, clean up their balance sheet, make them smaller, make them more efficient. You would have had a better bank, and you would have had some market discipline. You would have sent a powerful signal that the government had the gumption and courage to stand up to these very large institutions.

But that’s not what I think is the biggest mistake: We didn’t provide enough widespread relief to homeowners who were underwater. All these mortgages should have been written down to appraisal value. Along with some equity sharing with the lender for any home-price appreciation, it would have given people who were locked in their homes a way to sell them, to move, or to at least rehabilitate the mortgage with more affordable payments.

There’s this great book called House of Debt that argues the real driver of this deep recession was not the banks pulling back on credit; it was the drawback on consumer spending. Our economy is dependent on consumer spending, and home equity had been driving that. Once the equity was gone, the consumer spending was gone. We had a situation where people were still struggling to pay their mortgages — they had these unaffordable payments — and they weren’t spending anything else. So I think in retrospect, we should have done that, a widespread write-down of principal. We needed something simple and radical and we just never did it.

We’ve improved the system on the margin. There are higher capital requirements, better bank liquidity, less reliance on short-term financing, less reliance on debt among the regulated banks. Those are all positive things. But the financial system we have is basically the financial system we had in 2008, with more capital and less reliance on short-term funding, so whether it’s enough? I hope it is, but it’s still basically the same system. The political world wasn’t there in Dodd-Frank to break up the banks or do anything that would have fundamentally changed the system, so it’s still what it is.

I’m very concerned about efforts now to reduce capital requirements, to not continue with the liquidity reforms, to change the Volcker Rule, which allow big banks to take more risks. I don’t know why we’re doing that. I think this is the wrong time in the cycle. The banks profits are good, dividends are robust, and they got big tax cuts. They should be building their capital buffers.

The market doesn’t work unless you have accountability. When you let institutions get so big that they can basically blackmail you into providing support, that’s not capitalism. Adam Smith wanted to regulate banks! The leading capitalist understood that there was a need for regulation of banks. That’s what frustrates me about young people: They’re kind of equating this with capitalism, but it is not capitalism. We’ve privatized profits and socialized losses.

I wish we had more Republicans who would stand up to these cronies who want the government bailouts — people who want a system where they can do what they want and get bailed out when things go bad. A lot of people on Wall Street still secretly want that. They think it’s the government’s obligation to keep them afloat. I’m a capitalist, and I’d rather have the state own them than have that system.

Set the morality aside; it’s just dumb economics to have a system like this where you’re propping up inefficient, bloated institutions. So there are good economic reasons to not have the system we had in 2008, and whether we’ve gotten rid of it or not, I don’t know. We won’t know until a big bank gets in trouble again. Then we’ll see what happens.