This seems like a pretty shitty premise given the US mortgage meltdown of 2007.
In any case, peer-to-peer lending also has viability in microloans. The traditional alternatives for that have been credit cards (specifically the cash withdrawal), payday loans, and pawn shops, all of which have distinct downsides.
Not exactly. The US mortgage meltdown of 2007 happened because, in effect, banks realized that the aftermarket for debt had grown so unskeptical that they could basically resell any loan immediately after they made it.
So, from their narrow perspective, virtually no loan was too risky.
Just fine. Bailouts.
https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_los...
Okay for JP Morgan though.
Banks did have "counterparty risk insurance" on their assets - those CDS (credit default swap) things. (Like the other banks. And thus the CDS provier AIG "failed", because - of course - all their insurance contracts were correlated / not independent enough.)
I'm not saying they are/were angels. There were seriously in the stupid zone just from a technical point of view. ( See that table: https://www.econlib.org/archives/2013/05/conditional_ins.htm... )
I think the important distinction between all the banks are stupid and a stupid systemic failure of banks is important. After all, a lot of banks were not stupid, and stayed afloat well, without any sort of bailout.
Particularly before it was repealed, you had two different kinds of banks: Savings and Loans, and investment banks. S&Ls were the ones actually making the loans, and would have been prohibited from getting involved with CDOs. Investment banks would have been allowed to get involved with the derivatives market, but could not have operated as a S&L.
The banks who were just operating as S&Ls made out like bandits - they made bad loans, immediately found a rube to sell them to, and whistled Dixie as they walked away.
Banks that bought a lot of these CDOs ended up being the rubes, and that activity was the major source of the "too big to fail"-type bank closures and near-closures.
Where it gets muddy is that it used to be illegal for those two kinds of banks to be the same entity. But still, I think you can draw a logical, if not physical, line down the middle in order to say, "the people actually making the bad loans weren't really the victims here."
Only if you have a very superficial understanding of the mortgage meltdown. The underwriters of many of the bad mortgages were able to quickly sell the mortgages off to other banks. So there was almost no incentive to actually restrict who they were lending to.
Also, you imply a contrapositive that isn't the case. Just because there were banks that were excessively lending in the early 2000s doesn't mean that there are banks that are being excessively conservative and leaving behind good returns.