Why is it that other, smaller banks couldn't come in and pick up the pieces?
Where do you propose the smaller banks come up with the capital to do so?
I saw a claim the other day that Citi, JP Morgan, and Bank of America hold over 60% of all US banking assets.
Besides, the worst thing to happen would be to let them fail and then make the mistake of spawning more megabanks. We need more small and mid-sized institutions, not enormous ones. Sadly, Treasury, FDIC, the Federal Reserve, and OCC seem to disagree, what with pawning off huge institutions on even larger ones.
The Bush Administration handled things incredibly poorly (although to the advantage of certain cronies), and the Obama Administration has done little better, although at least so far without any obvious crony "capitalism."