I'm sorry to be so glib, but if the answer isn't as simple as "end bonuses", it also isn't as simple as "just let the banks fail".
But there is a "simple" difference between philosophies of how to address corruption in financial markets.
>> And if tens of thousands of people lose their jobs because the corporate credit markets freeze and otherwise-profitable companies can't fund their day-to-day operations
There is no way to avoid the day of reckoning.
Don't pretend that any crises that were avoided in 2008 won't be that much larger when they eventually materialize.
That would be true if it weren't for the fact that a good bit of our economy relies on confidence and trust. Confidence that there isn't a huge recession or depression in the near future, and trust that others will remain in business if you deposit/lend them money/invest.
So in a very real sense, a panic, even if it isn't based on anything fundamental, can set you back very significantly.
2) Ok lets asume your right:
Im against a fed in general but acting as a lender of last resort is the one of the few valid things the should do (sometimes). The problem is that the lender of last reserve thing is for banks that still are liquid and just need some cash now. A lot of banks like Lehman and other weren't liquid anymore and in that case its not really lending its more saving them. Banks that violate the golden rule of banking (lending long, borrowing short) should not get these kinds of lendings. The plaid at there own risk with ful knowlage what the do. Capitalism puniches this kind of stuff and acts as a filter. If no bank ever goes bust the banking sector will be much bigger then it normaly would (missalocation of resources).
Little extra note: Lending as last reserve should be done with high rates (if a bank really only needs it to guard agains the run the can afford it) the fed just floded the banking sector with cheap money. Thats quite diffrent then beeing lender of last reserve.
2. That is a fine argument - I agree with you that banks should not be saved. Unfortunately, when they get too big, then they threaten the system itself and that was the worry. But I agree that the proper approach would have been a pre-packaged bankruptcy aka the Swedish approach.
Moreover, we should reinstate the laws that separated commercial banking from investment banking. And we should regulate the CDS market - a huge component of the system failure worry wasn't that an individual bank was going to fail - it was that all these different banks had CDSs to protect themselves. That created a stronger interconnection between the banks. Regulate the CDS market via a central marketplace with a clearing mechanism.
On your last point, if the goal is to provide liquidity, lending at a high interest rate won't do it. The point is to keep the market being a market - if you have the high interest rates people won't borrow and the banks will just hold onto that capital, and the market will continue to be frozen. Runs on the bank are stopped by the FDIC which secures depositor money - so you're mixing up why a bank might need the money. Also, I'm really not talking about the individual depositors - I'm talking about the commercial paper market which serves business, not individuals.