Garett Jones on an alternative to either bailing out the banks or letting them fail spectacularly.
But all corporate bankruptcy means (again, to an economist, not a lawyer) is that some of the bondholders get turned into shareholders: Instead of getting the $10,000 you were owed, you get shares that will probably be worth much less. In the simplest case, the shareholders get nothing (they had their chance to run the firm and blew it), the bondholders become the new shareholders, and the firm keeps right on running. Seems like something you could do over a weekend.