> Markets as optimization tools only work if people are made to suffer their losses when they occur; bailouts subvert the process and pervert the outcomes. The

> Markets as optimization tools only work if people are made to suffer their losses when they occur; bailouts subvert the process and pervert the outcomes. Their losses become our losses when the failures create systemic risk of a banking and financial collapse. A total lockup of the US financial system would mean that companies with a yearly business cycle wouldn't be able to make monthly payroll and ATMs would stop working. You can't isolate the pain down only to the bad actors, everyone suffers. If wall street builds a shitty nuclear reactor and it melts down in the middle of Manhattan, there really is no option for "well just let it fail" because the fallout will cover the area. It works the same way with finance. Once the whole system is at risk then the government has to act in order to save it. What needs to happen is regulation up front. Once the financial system is melting down then the system has to be rescued. What we could alternatively do is at least jail the executives and remove the liability protections of working from within a corporate structure. But the idea to just let everything fail is how you destroy the US financial system. And we actually tried that back in 2008 when the Bush Administration let Lehman fail. That was bad enough that it would up with Paulson down on one knee begging Nancy Pelosi to not play politics and to rescue the financial system.