In the early stages of the crisis, troubled institutions facing runs were dealt with through a scattered blend of voluntary mergers, outright closures, and bailouts. By late September 2008 and thereafter, panic had descended on the Treasury and the major financial agencies. That resulted in the decision to backstop the full range of large institutions,as government officials feared a collapse of the entire financial system. However, serious analysis of the risks facing the financial sector was sorely lacking and outright misstatement of the facts was evident.
It did not have to be that way. Simple rules elaborated by Walter Bagehot and Anna J. Schwartz involving a systemic review of the condition of the financial system, prompt intervention, and consideration of the condition of individual institutions could have prevented the numerous ill‐advised bailouts. Additionally, evidence that the runs were not indicative of a pending collapse of the system, but were rather a simple matter of migration of deposits from weaker institutions to stronger institutions, were apparently not considered or ignored. Application of these considerations could have avoided the panic by the authorities and the strategy of bailouts for the megabanks.