Make a bad investment, and you'll lose. That's a backbone of capitalism. It's how venture capital works.
But on Wall Street, as we've seen, things can work differently. Student loan debt can be nearly impossible to write off in bankruptcy. Certain types of debt were guaranteed by the government during the financial crisis. And of course, there are direct bailouts. Shareholders of too-big-to-fail stars Citigroup (NYSE: C ) and Bank of America (NYSE: BAC ) lost most of their money, but the direct subsidy to shareholders has totaled well into the billions of dollars.
I recently sat down with Hoover Institute economist Russ Roberts, who talked about how subsidizing risk distorts the economy. Have a look.
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