10 More Banks Should Have Failed: Jim Rogers

The Federal Reserve and the Treasury Department should have let 10 banks fail, not just Lehman Brothers, for the financial system to clean itself up, legendary investor Jim Rogers told CNBC Monday.

The piles of cash thrown at the markets have not solved the fundamental problem of debt, which would have been solved only by letting institutions go bankrupt, while regulators should be in jail for allowing "crony capitalism" in America, Rogers said.

When Lehman Brothers went bankrupt, "I thought thank goodness they're finally letting somebody collapse," he told "Worldwide Exchange," adding that former Treasury Secretary Henry Paulson should have let "10 (banks) go bankrupt."

But instead of this, "all the government officials and bureaucrats loved the fact Lehman failed, because they could all jump in and support banks," Rogers said.

Letting sick banks fail would allow the relatively good ones to recover quicker and be healthier, but now governments risk dealing with zombie, Japan-style banks for years, he added.

"What we're doing now is we're taking the assets away from the competent people and giving them to incompetent people and telling them 'now you can compete with competent people with their money,'" Rogers said.

Long-Term Capital Management — the troubled hedge fund that was bailed out nearly 10 years ago to avoid a knock-on effect of its collapse — should have been allowed to fail and its effects run through the system and banks would not have dared to get into debt and speculate, he said.