Jeff Miron argues a good but not compelling case (although I am sympathetic to it):
When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it's important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone's mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.
Reading Phil Swagel's account of the Treasury's response it almost sounds as though the Treasury did in fact do nothing. There was a lot of action and the most effective response (IMO) - nationalization - was ruled out by the fact that America is a democracy that must abide by the rule of law and respect for property rights.
What is interesting about Swagel's account is that one cannot help but wonder if the crisis would have been resolved more efficiently if America were a dictatorship. Where is the George W Bush of financial crisis when one is needed? The bottom line of the story from Swagel is that in a democracy we cannot really expect anything definitive, forceful or decisive from the government.
At the same time, the flurry of activity while may not have had much content may have affected the psychology of participants enough that it did eventually bring calm to the markets (albeit in an inefficient manner) but without first sowing a lot of confusion and uncertainty (and in fact may have initially made things worse). Thus, while my sympathies are with Prof. Miron I cannot draw the same conclusion as he does, which is the Fed should have done nothing.