Why shouldn't banks be limited to a certain size that would not pose a threat to the entire economy? Why shouldn't they be restricted to specific activities that support personal savings and the financial needs of real businesses? Why shouldn't banks be forbidden to gamble with depositors’ cash, also known as other peoples' money?
It doesn't happen because the government is addicted to the tax revenues from the financial services and doesn't want the banks to go overseas. Let them go overseas: they won't find another country with the cash to bail them out nor the political vulnerability to their lobbyists and cash donations.
The subprime mortgage derivatives generated trillions of investment dollars by bank professionals who failed to research the package offered, failed to assess the viability of the sponsors, and ignored the underfunded reserves. Investment banks are a lot closer to spreadbetting indexes than your traditional gambling bookmaker as they simply let everyone else take the risk secure in the knowledge that the government will bail them out with taxpayer money. At least we should separate retail banking from the pure gambling that is often called investment banking. Another alternative would be to nationalize the banks. If the taxpayer assumes the ultimate risk, he should have ownership.
If Congress actually passes a bill forbidding bailouts but does not break up the enormous banks to a reasonable size, the next financial crisis will again be called a threat to the entire economy and the bailouts repeated. Never before has the intertwined relationship between big business and big government been so obvious to so many Americans. They are demanding change and they will get something that looks like change - but it won’t be adequate to contain the continuing crisis.