One thing we could do is let the financial institutions fail. Much of this is because investors and financial institutions bet that they would be backstopped no matter what, and that has proven to be largely true.
In a way a number of them did...
Washington Mutual
Lehman Brothers
Bear Sterns
Citi was partially taken over
GM was partially taken over
Chrysler was partially taken over
AIG was partially taken over
The shareholders and in a few of the companies the bondholders took a bath in their investment... if I were an investor in any of these I would have lost big time... that is an incentive IMO...
Not sure about BofA... but they look like they might be going under soon...
Now, is there an incentive for the management to do the right thing... not that I can think of... that loan they gave to someone that probably should not have been given.... was it because they wanted to book the profits or help out someone in need
A lot of people might have been thinking that they were just helping... and were proven wrong... there were also a good number who just wanted to get paid... they process the paper that comes in front of them and do not really care what is on it... as long as they can check the boxes that they are supposed to check... and of course there is the management that wanted more profits for a bigger bonus... and thought that the line was a lot farther away than it was.... not knowing they had crossed it a long time ago....
And of course there are the crooks who did not care what would happen in the end as long as they profited.... like the firm that got Goldman to put in bad loans into a CMO and bet against it... (which seems perfectly legal from what I can tell)....
Can we change human nature
No... this will happen again with something... might not be housing for awhile, but it will be something....