The financial sector cannot do the things they do without the implicit state guarantee on their deposits. This fact has been well-documented by writers such as Charles Ferguson and Yanis Varoufakis.
This means that taxpayers will not be forced to hand over their money to the private bankers if there was no implicit government guarantee. It really comes down to this. If there is a monetary system, in which investors pay for risks which they take, then the public will not be subjected to the same kind of catastrophe.
Frosti Sigurjónsson's "Sovereign Money System" is one such proposed system. On this system, a democratically chosen Money Creation Committee will decide how much new money to create every year, depending on what is needed by the growth or decline of GDP. Taxpayers are protected by a separation between Transaction Accounts and Investment Accounts. Banks can only use money deposited in the IAs for investment, while the state guarantees only the money in the TAs. This way, investors are forced to pay for their own risks, and banks, when becoming insolvent, must file for bankrupcy like any other corporation. On the SMS, even if banks go bankrupt, deposits in the TAs will be protected due the way the system is set up.
Now the SMS is, like all other political proposals, not absolutely bullet-proof. It is important to think of concrete scenarios of state officials and private bankers taking advantage of such a system. In particular, it is important to think how to keep the Money Creation Committee from becoming undemocratic.
On the other hand, it is also crucial to keep in mind that this system is much better than the one which we currently have. For starters, money creation will be done transparently. Moreover, at least deposits in the Transaction Accounts will be fully protected.
Furthermore, and perhaps this is the most significant, the Sovereign Money System may serve as a foundation for a zero-growth economy. On Frosti's proposal, banks are expected to administer the Transaction Accounts through the fees they charge for transactions. Therefore, banks are not obliged to pay interest on the deposits. Now the investment banks might want to see growth, since their aim is to profit from interest payments. However, the banking system itself, as a tool for making smooth transactions and for securing each person's deposits, will stay in tact even if all investment banks go bankrupt.
In short, the Sovereign Money System will allow banking to stay in tact in the absence of economic growth.
This means that banks can be highly selective on where to invest. Investments will not be made on the basis of a projected profit target. Rather, investments will be made only in so far as the business serves some concrete social good.
Such prospects radically question the fundamentals of capitalism. According to one dogma of capitalism, surpluses must be re-invested in order to yield more surpluses. If re-investment does not happen, then idle capital accumulates, and there will be a "liquidity crisis." This is a huge problem in capitalism. However, the SMS at least in principle allows for the accumulation of idle surpluses without causing a crisis. This becomes a crisis only because the money creation mechanism is such that, unless capitalists re-invest, workers cannot receive their wages.
This consideration brings us to the idea of a guaranteed basic income system. There are many different forms of basic income, and I do not know yet which one is the best. The basic idea, however, is the same, and it is to secure the right to life of all citizens without exception. Basic income is predicated on the idea that even the most lazy, idle individual is entitled to life.
Now this idea is unacceptable for those who believe in the saying "those who do not work should not eat." Yet this saying is not grounded in reality: it is a slogan used to make citizens accept wartime hardships. We live in an opposite reality: the reality is that there is a significant overproduction of food. Letting idle, lazy people live for free is, then, not a crazy idea at all. Rather, it is more crazy to deny them the right to live simply because, at least for the time being, such people are idle. (There is a question of why idleness is automatically condemned as ethically and morally reprehensible. This is a philosophical question which needs to be addressed in more detail. Bertrand Russell's famous essay in praise of idleness is entertaining, but not nearly good enough to start a serious conversation.)
If people know that they will survive, workers will no longer depend on capitalists in order to make their living. If capitalists are freed from the obligation to look for profitable investments and to extract surplus from the workers, then a whole host of social problems may be solved. For one thing, there will be an end to support a culture of unnecessary mass-consumption, which will in turn contribute to a drastic reduction in energy consumption. Climate change can be mitigated in this way. Moreover, deaths from overwork, stress, and poverty will also be greatly reduced. The real economy might become more productive, since more people will be given the choice to look more carefully at what is actually needed by their community, and work on something which people actually need or would value.
Too idealistic? Well, but maybe a realistic skepticism conceals an even worse idealism, namely, that in the future we will not regret how we imagined the future today. Moreover, this "idealism" is not a string of empty big words. It is a concrete proposal, a system which can be implemented if governments so choose. At least Iceland has a governor who is proposing it. And Iceland had to learn a big lesson after the banking fraud in 2008. So what are other countries waiting for? Or shall we all sit and pray that God will one day magically reduce temperature levels to pre-industrial levels?
