If a bank can’t manage its loans, it deserves to fail for the reasons you point out. But do all the depositors that get wiped out “deserve” to fail? They had no voice in setting bank policy, in fact, they had no way of even determining what it was (banks, like all businesses, are notoriously stingy with evidence of their malfeasance).

We try to spread the risk of this sort of thing by using insurance, regulation, bailouts, and other methods, but that often just postpones the problem, or merely dilutes it so everyone pays a little bit of the price. The real issue is that when big corporations go under, they drag many thrifty, honest, productive and decent people down with them. Great damage can be done to an entire nation because a small group of men do something that is wrong or stupid. When some crooked businessman figures out how to short a fuse in the free market, the resulting and inevitable fire burns everybody. It happened in 2008, 1929, and in hundreds of other panics, bubbles, failures, depressions, and crashes long before there were government regulations to blame.

This problem, has no yes or no, black and white answers. Its like teenagers may have the freedom to go drag racing, if they crash and die they have no one to blame but themselves, right? But what about the little old lady and her grandchildren crossing the street who were taken out by their recklessness in the pursuit of winning, and freedom?

It is the purpose of government to at least make an effort to protect the innocent, or failing that, give them justice. The market just doesn’t care.

Oh, and you should know better than to shift the blame to “liberal” schools and philosophies for turning out these vicious and unprincipled businessmen. Its the competititive management ethos that despises and ridicules the weak, who has nothing but contempt for those with no naked ambition or “business sense”, and lionizes the strong and the ruthless, that mass-produces these bullies and forgives their crimes with a wink and a nudge. They played sports at reactionary schools where “Winning isn’t everything, it’s the only thing.”

Gordon Gekko was probably not a Montessori muppet.

Moral hazard is what got us into the Savings and Loan crisis, as bankers realized that the regulations had been eased, but their government safety net was as strong as ever.

Moral hazard is what told the mortgage industry that they could take huge risks, and their backers could rely, in extremis, on government funds.

Moral hazard is what’s now telling the financial industry – and others like the auto industry – that no matter how bad you screw up, the taxpayer will cover your ass.

These industries should have been allowed to fail. The economic hit would have been worse, no argument, but what came out the other end would have been stronger and smarter. Bankruptcy laws are the machinery that takes carrion and turns it into fertilizer.

Liberals often say that profits in our country are privatized, while losses are socialized. In many cases, they’re right.

A company that makes crappy decisions is punished mercilessly by the market, and this punishment needs to land hard. The smoke from a failed company should be visible for miles, and other companies and their stockholders need to see it.

There are people who, as kids, were never allowed to fail. Their parents protected them. They played sports at enlightened schools where nobody really “loses” a game.

These people turn out to be creeps obsessed with their own entitlement to everything they want. Sure as hell they can’t handle failure when one hits them outside their old bubble.

Failure and stupidity are supposed to hurt. To create hardship, shame, and misery. That’s what makes it something we try hard to avoid. We evolve. We learn how to avoid failure, and we learn how to get past it without being crushed.

Heck, in biological evolution, failure is fatal.

Businesses are no different.

“Too big to fail” is an obscene concept, and every time we bail failure out, the next cycle of failure is larger.