Your basic point was that the recession was caused by governments pursuing a policy of low interest rates.
I just pointed out that Canada did the same thing and yet the Canadian banks did not collapse. If your points were true, the Canadian economy would have suffered the same fate as the American economy.
Australia is another good example. Australia's banks survived because of good regulations. Australia was also following the same policy of low interest rates. Since Australia's economy is far less dependant on the US economy, Australia did not even enter a recession.
Lowering interest rates was one of the contributing factors that caused the financial crisis. It was not the sole cause. The Canadian banks didn't suffer the same fate as the United States because the Canadians weren't stupid enough to have government organizations (Fannie Mae and Freddie Mac) buying mortgages that banks originated and didn't want anymore. What bank would care if the borrower had the capacity to pay them back, If the government was just going to buy that loan off their hands anyways? This is not a lack of regulation, this is a complete over reach of government involvement in the financial market. That's why American banks (mainly the large ones that new they would get bailed out if they werent able to get those bad loans off their books before the fit hit the shan) took these kinds of risks, and the Canadian ones didnt take nearly as many. The same goes for Australia.
I proved your points wrong by using the scientific method. Economists and political scientists use it to judge the viability of a theory by using real world examples. The real world tells us that the Canadian and Australian approach prevented the economy catastrophe that hit Europe and the United States.
The European Union is ridden with excessive regulation, taxation, bureaucracy and debt. Those are the underlying causes of it's financial crisis. The catalysts that caused the first few dominoes the fall, and the inevitable process to be set in motion are not very relevant.
Now regarding your analogy, it does not work. In casinos there is individual liability. When a person enters a casino and gambles he/she is putting his/her own money on the line and if he loses everything, he/she is the only person who is liable. (Little more complicated if the person has a family).
Banks are very different.
First, had the banks gone bankrupt, the people actually running the bank would not have been liable. The banks were corporations and the directors and shareholders would be protected by a corporate liability shield. This shield protects the bankers of the corporation from debts and losses incurred by the corporation. The moral hazard argument is moot. There is no personal implications to the bankers in the first place.
Second, the bank itself would have been liable. According to American law, corporations are "people". They are fictional persons and if a corporation went bankrupt, only the assets of the corporation are on the line. The only asset which a bank has access to is the money which the depositors put in the bank. Effectively, the average American would have been liable for the risks taken by Wall Street.
Effectively the bankers were getting rich by gambling with other people's money, and those very same people would have lost every penny when the banks went bankrupt, while the bankers would have gotten significantly richer without taking any real risk.
I used the analogy to point out the fact that if you have consequences for the risks you take then you are much more calculated in the risks you take. If banks were not bailed out, after they behaved recklessly then the reckless behavior would stop. The system would be allowed. Once we returned to a normal financial environment, the individuals managing money at these institutions would need to weigh the risks of their operations much more consciously, instead of simply originating loans to people who couldn't prove they had a job, or who claimed to be a landscaper making over a million a year etc., and then handing the loan off to Fannie or Freddie and collecting the commission. The executives dont need to have their own money in the scenario for the analogy to apply. They have a reputation to hold, there could be clawback clauses in their contracts to prevent them from short term booms that lead to busts and encourage sustainability, and its not like the goal of running a business is to make sure youre as reckless as possible to make sure it goes bankrupt as quickly as possible. Lets be real here.
But in a free market, who cares what the banks do with the money? Ill tell you who should care; The stakeholders, and the depositors. Period. If you don't care enough to look at a few simple evaluations as to the financial prudence of the institution to which you are about to entrust your money, then don't come crying to me if it goes bust. I dont wanna hear it. Take some responsibility for yourself. In a free market environment, especially one that has the almost seamless level of global communications that we enjoy today, rating agencies would be allowed to form and independently verify the financials of each bank, and break down the level of risk into terms that the average person could understand i.e. 1-10 or A-F etc.
When people start caring about what their bank does with their money, that will become a very significant factor to the way banks are run. If a bank begins acting recklessly, then rating agencies would begin downgrading that bank. Depositors would then demand a higher rate of interest for depositing their money there. If the bank didn't pay those higher rates, then the depositors would withdraw their at that particular institution, and the institution would be forced to become more conservative, or it would fail and go away, and the bankers would have no money with which to take risk anymore. Simple.
This system fails when depositors stop caring about what their bank does with their money because the FDIC insures their account to a limit higher than the amount they have on deposit Its obvious how reckless behavior can easily manifest itself in an environment such as this, because its effectively NOT the depositors money, its the governments (all of our) money. Again, this is not a problem of insufficient regulation, this is a problem of government involvement and distortion.
This is why we need regulations. Bankers have every incentive to take risk, and no disincentive to avoid taking unreasonable risks. Other people are liable for the losses of a bank, while the bankers themselves get significantly richer.
Upon Americas founding, there were a good 120-130 years of almost pure free market capitalism, and we saw the most extraordinary growth the world has ever seen. We became the wealthiest nation in the world in BY FAR the shortest amount of time, and that wealth creation occurred in a regulatory environment that was almost non existent. If you want to fix the problems we have then get the hacks in Washington out of the equation and let the market regulate itself, completely uninfluenced by the force, and inherent distortion therein, of the government.