Nonsense!
The entire fiasco could have been prevented by NO BAILOUTS and NO IMPLICIT PROMISES OF BAILOUTS.
People act irresponsible when they know they will never have to face any consequences.
Well, the fiasco was already in full swing, freezing the credit markets and drying up liquidity, and taking down the financial systems by the time they got around to TARP.
But re IMPLICIT PROMISES OF BAILOUTS, that is exactly what Fannie Mae (and later, her spinoff Freddie Mac) was created for, in 1938 by Franklin Delano Roosevelt, as part of the New Deal - to securitize and package FHA loans into MBSs for sale, with "implicit" but definite guarantee of government / taxpayer backstop of originated mortgages - to facilitate the housing sales. That guarantee and the size was one reason the Feddies were able to obtain money and provide loans at lower rates of interest relative to private competitors.
People act irresponsible when they know they will never have to face any consequences.
Exactly! And that was the "implicit" deal behind Fannie / Freddie / FHA since the New Deal, and all but explicit behind Carter's CRA and it picked up steam due to its fierce enforcement by Clinton gang at DOJ and HUD (Secretary Andrew Cuomo) and through lawsuits by "community organizers" like Obama... culminating in the burst bubble about decade later.
More importantly, I would add that when speculators are required to cover their bets, they will generally stabilize the marketWhen speculators are allowed to make bets they won't have to cover, they will destabilize the market. Speculators who act in ways that destabilize the market lose money; those who use their own money have an incentive to avoid that, and will be forced out of the market (by going broke) if they don't. Speculators who can lose money without losing their own money face no such restriction.
If a market allows participants to speculate without having to cover their losses, it is entirely rational for people to do so, and nobody should be surprised if the markets become unstable as a result.