The Peril of Bailouts

The current bailout culture, which originated with the $75 billion the airline industry got after 9/11; snaked its way through the Fall and Winter of 2008 / 09; and is now front and center in Europe, misses a fundamental truth: bailouts don't change behavior.

How quickly we forget that the rescue of Bear Stearns in March 2008 sent a crystal clear message to Wall Street that Uncle Sam would be there in case anything got rough.

When Lehman Brothers went down that September, causing great strain to the investment banks, it was the U.S. taxpayer who was finally "volunteered" to step in and save the day.

From then on, the casino has stayed open and the players continue to make huge bets with other people's money. The unregulated derivatives market is currently about $500 trillion or half a quadrillion dollars

Now in Europe, more and more is being shoveled into Greece to stave off the inevitable.

The other members of Club Med Spain, Portugal, and Italy are talking about reforms, but nothing substantive has happened to change the calculus.

This is all like telling your teenager not to do something, and then when they do it anyway, giving them all of the resources and support to make the same mistake again.

Bad behavior is not altered it is reinforced.

Until we allow failure back into the capitalistic system, the behavioral changes that are so desperately needed won't occur.

Unfortunately, it seems the only way this is likely to happen is when something as a big as, say Italy, is too big to be bailed out.

And then, when the storm comes, it will take out a lot more people than should have originally been impacted.