When the bailout of Bear Stearns took place, Hank Paulson, Secretary of the Treasury, pointedly stated that he was aware of the problem of "moral hazard," the notion that bailouts just encourage risky behavior with other people's money. And he warned the market that no one was "too big to fail." He implied that he just might let someone fail to demonstrate that the Administration was not creating a moral hazard. To prove his point, Lehman Brothers was allowed to go under when that problem could have been handled just like Bear Stearns, notwithstanding Chairman Bernanke's statements to the contrary.
The pundits are now all pointing out, perhaps correctly, that it is fallout from the failure of Lehman Brothers that has resulted in the present seizing of the banking system. And they are blaming Paulson's wooden allegiance to free market principles (i.e., Capitalism) that caused the Administration to turn it's back on Lehman Brothers.
Wait a minute, folks! This is not Capitalism. None of it. It's economic fascism.
In the context of our corporativist/fascist economy -- which was constructed over the past century by the populists, collectivists, welfare statists, pro-fascist bankers and self-dealing big government politicians -- the appropriate short-term action for Paulson to have taken in mid-September 2008 would have been to bail out Lehman Brothers, moral hazard or no. Moral hazard started long, long ago. And Paulson's misguided token action has backfired.
It will take decades, maybe longer, and much popular and political will to deconstruct the impediments to free markets, to allow people to rise or fall on their own abilities without exploiting their neighbors, and to return to limited government. I will not live to see it. Nor will my children, nor yours. But you can make sure that the ideal lives on and that at least the trends show a popular understanding of the moral and practical efficacy of Capitalism, still an Unknown Ideal.