Please cite examples. Reserve requirement, ratio-backing and other facility policies offer enormous monetary expansion even with a gold-standard. The roaring 20's, a perfect example. Historically, avenues to "Get-around" hard-money, were allowed to exist. To keep bankers happy and the public fooled.
Like I said, ways and means to 'get around' hard money are left available under fixed monetary systems. Close the loopholes to aggressive monetary expansion under fixed money, and problem solved. If the historical record is so "Clear" on hard money bubbles, post a few examples. 9 times out of 10, its an influx of derivatized credit from lower reserves/backing Your entire argument is a straw-man.
Let them fail. Period. If the FED wern't here to bail them out, would Banks write naked puts (CDS) on the market? No, they wouldn't. The FED is the Moral Hazard. And the Free-market, when left alone, is self-policing. Would you invest or patronize the services of a insurance company who sold policies with no insurable interest? 100 people each with full claim against 1 property? No, you wouldn't.
From the horses mouth. Ron Paul advocates Government legislation against fraud. CDS is fraud. No insurable interest. 2:30 in. <object width="560" height="340"><param name="movie" value="http://www.youtube.com/v/GK71901OBi0&hl=en&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/GK71901OBi0&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="560" height="340"></embed></object>