If you'd asked bankers a year or two ago whether, if they'd just bankrupted their own institutions and brought financial calamity upon the world, they would get bailed out by the taxpayer on the scale they have with as few strings attached, I suspect all but the most optimistic would have hesitated to say "yes". And now? Surely most would nod their heads in agreement and confide that even in their most optimistic moments they hadn't realized just how far you oculd take this game.
If the bailouts continue in the manner they have (as opposed to some mix of full nationalization, bankruptcy, new "good banks", prosecution) what does this portend for the future? In a few years, the immediate feeling of crisis may have abated, but the memory of what happens when it all goes wrong (you keep your beach house, everyone else gets fleeced) will stay with the financial industry. The implication is this: moral hazard will become an even bigger issue after the dust has settled on these bailouts than it already is. The next generation of bankers will really believe that they can get away with almost anything. We have to get the bailouts right, now.
(I'm using the term "moral hazard" pretty loosely here to mean the propensity of agents within financial firms to engage in risky activities because of their insulation from the consequences of those activities. There's a huge principal-agent problem here too, with the principals being firms and shareholders and the agents being employees.)
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