At our last caucus meeting, a side conversation between Lee, Chris, and me developed about the Bear Stearns bail out. I stated unequivocally that it was wrong. Lee disagreed (and Chris may have too) but, as is often the case, we got sidetracked by other side conversations before we had a chance to give any rationale for our views.

I came across this today which touches on the main reason why I believe the bail out to be wrong.
http://the-undercurrent.com/paper/too-big-to-bail/

The bottom line is that as painful as a Bear Stearns failure would have been, we have now set ourselves up for even greater debacles. Why? If the nanny state is going to rescue entities that are 'too big to fail', why should we wonder why such entities do such foolish things?

Hal

You’re right. We didn’t get to carry this conversation as far as we should have.

I categorically disagree with the exercise of a routine bail-out policy - whether for individuals or for organizations.

The only possible exception that I brought up at the caucus is that there may be some organization so big and with tentacles so deep into our financial system that the negative results of a bail-out would be less than the collapse of that organization which could deal our financial system such a blow that we’d be years or decades trying to recover.

For want of a better term, this is what I would term the “sinking ship solution” - when a ship, whose destruction, threatened due to unfair/greedy actions by the crew in one department, could be averted by coordinated efforts of the crew and passengers.

But it is ultimate lost because one or some of the passengers / crew members, convinced that it is not their job to contribute their efforts to save the ship, will stick with their principles and stand back and watch the destruction.

And, as the crew, passengers and ship sink under the waves, one arm is still visible holding a sign, “I stuck to my principles”.

I was not suggesting that this is such a situation. I simply stated that that would be my exception.