Dear old Uncle Sam has gotten into the habit of bailing out big companies that get into trouble. GM, Fannie Mae, Freddie Mac, and AIG are the most flagrant examples. The usual excuse is that allowing a big boy to go belly up will scare the market, causing a lot of other big boys to croak. Causing a lot of money to be lost.
And, we passed a law, Dodd-Frank, which makes bailouts policy. Dodd-Frank sets up which companies will get bailouts, how much.
The real problem with bailouts, is they urge on crazy behavior. In no-bailout world, company management is pretty careful about the risks it runs. If they do something really risky, and it fails, the company is toast, they and everyone in the company are out of work, the investors loose everything. All around badness.
But when Uncle Sam says he will bailout companies, all bets are off. Now management can do all those crazy things, and if they fail, the company survives, they keep their jobs, and the investors are untouched (mostly). No pain. And without pain, nobody learns anything. No pain, no gain.
We ought to repeal Dodd-Frank. We ought to make it real clear world wide that we don't bail out nobody, and we need to carry thru, and actually flush some loser down the drain, just to make the point.
To run a capitalist society, which has made us all rich, you need capital. We cannot afford to flush capital down the drain doing mortgage backed securities, credit default swaps, futures trading, derivatives trading, and all those other risky gambling games they run on Wall St.
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