A decade after the massive government bailouts for Wall Street, some of the financial intelligentsia in New York and Washington no longer seem to view them as a bad thing. Rather than distasteful taxpayer handouts to reckless financial institutions, a new narrative holds that the extreme moves of 2008 and 2009 were heroic measures that the government should be ready to redeploy if the financial sector implodes again.

Bankers and Wall Street titans, for whom this argument carries obvious benefits, aren’t the only ones making it. Even some leading economists are expressing sympathy for this view. But the main proponents of this idea are former treasury secretaries Hank Paulson and Timothy Geithner, and former Federal Reserve Board chair Ben Bernanke, key architects of the government’s response to the financial meltdown. They recently co-authored a book to advance the point.

But let’s be candid: While these massive bailouts were intended to help the real economy, they worked primarily to the benefit of Wall Street. They may have kept the financial system sputtering along, but the rationale — that bailing out the financial sector would help everyone else — didn’t materialize. Rather than making big bailouts the norm, we should work to make sure that they never happen again. They were a terrible idea — a feat we should not repeat.

As chair of the Federal Deposit Insurance Corporation during those tumultuous years, I worked closely with these three gentlemen on stabilization measures. Those included temporary debt guarantees provided by the FDIC to many large financial institutions like Morgan Stanley, Goldman Sachs and Citigroup so they could continue to access the money they needed to operate as credit markets seized up. Our programs have been widely lauded for their effectiveness, including by Paulson, Bernanke and Geithner, and I am proud of the professionalism and skill that the FDIC staff showed in designing them and putting them into place so quickly.

The job of the FDIC is to protect Main Street depositors from losses on their insured deposits. (We handled nearly 400 bank failures during my five-year tenure, permitting depositors seamless access to their money.) The job is not to create expectations among big bond-investment firms that the agency will protect them from losses if they own the debt of a bank that runs into trouble. They have the resources and sophistication to protect themselves, and we need them to exercise market discipline to help keep risky bank behavior in check.

During the financial panic, I went along with the extraordinary interventions because I understood them to be one-offs, unprecedented measures to address an unprecedented crisis. I thought that once we got through those dark days, we would commit to fundamental reforms of the financial system to make sure it wouldn’t run us into a ditch again. But now Geithner, Paulson and Bernanke — the architects of the bailouts — want to standardize these extraordinary measures and even repeal the modest limits Congress wisely placed on them in 2010.

Once the immediate danger was past, Congress constructed procedures for handling the orderly failure of large, sick institutions — procedures that impose accountability on management, boards and investors, while preserving latitude for regulators to limit disruptions to the real economy.

Using these new rules, investors, rather than taxpayers, absorb losses, while culpable executives and board members lose their jobs. At the same time, regulators have latitude to provide funds to continue credit and payment services to the customers of the failed institution as it is wound down.The system needed these better rules and parameters for the use of government resources to support financial institutions.

Most of the major failures that occurred during the crisis were not of FDIC-insured banks — for which we had time-tested tools to manage collapses — but of non-bank brokerage or insurance firms such as Lehman Brothers, Bear Stearns and AIG, or noninsured affiliates of big banking organizations such as Citigroup. For these entities, we didn’t have a playbook, which is why there was so much ad hoc decision-making that confused the market and made us vulnerable to accusations of caprice and bad judgment.

I believe we acted honorably in what we considered the best public interest. But our ability to exercise broad discretion with no real-time oversight or transparency left us open to this criticism.

Bear Stearns was bailed out. Lehman Brothers was allowed to fail. AIG was effectively nationalized. Citigroup received serial bailouts with virtually no strings attached. We were handing out government cash, picking winners and losers, without any statutory guidance governing who would be eligible, how support should be allocated or what we should ask in return to make sure the support flowed through to the real economy. Our successors now have the playbook that we so badly needed in 2008 and 2009. And if they have to make the same kind of hard choices we did, they will at least have rules that justify their actions.

The public also needs a more thoughtful reassessment of how we could do more (not less) to let mismanaged financial institutions face the consequences of their executives’ bad decisions, whatever the market determines those consequences should be. Orderly liquidation of these institutions, as Congress has legislated, and imposition of losses on their investors would do far more to tame the financial sector than a regulatory regime that is proving itself, once again, to be far too captive of a Wall Street mind-set. Regulators are moving — as they were in 2006, just before the crisis — to ease requirements for how much money big banks must have on hand, as well as restrictions on loose lending and risky investments, when the banks should be tightening standards and building their reserves for the next downturn.

Bailout advocates have a blind spot about the lasting damage to the broader economy and the role of the crisis as a catalyst for rising populism. They defend the massive bailouts as necessary to avert another Great Depression. Maybe. It’s hard to prove a negative. But I doubt the general public will ever accept the story that the bailouts were meant to help Main Street. After all, most of the big banks barely missed a few quarters of profitability and were paying their executives big bonuses again by the end of 2009. No one went to jail.

It’s naive to think that our democracy could survive another financial crisis and another round of big bank bailouts. It’s wrongheaded to make serial bailouts the new normal. If the financial sector is really that unstable, we should just break up the big banks now — my preference — or nationalize them.

The last catastrophe saw 9 million jobs lost, 8 million homes gone. A lost decade for most of America. We cannot survive that again without even more major political upheaval. So if there is a next time, let’s allow a few of those mismanaged big banks to go down in flames and focus instead on putting out the fires on Main Street — by helping borrowers and supporting the better-managed banks, the ones that can keep credit flowing to the real economy. The survival of a reckless and unstable financial sector is not the business of our government. The survival of democracy is.

Twitter: @SheilaBair2013

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