I wouldn't want to be anywhere near the graves of some of the old-school economic philosophers right now. They're probably spinning violently enough to knock a bystander right off his or her feet.

What would Karl Marx think of government agencies helping huge corporations that took on too much risk and rolled in profits until the scatological unmentionables hit the fan? And while socialism has traditionally marketed itself as having that whole touchy-feely, help-the-little-guy idea to go along with the whole redistribution-of-wealth thing, well, bah! -- big Wall Street banks have workers, too, right? The irony's pretty priceless.

I wouldn't want to be anywhere near Adam Smith's grave, either. Anything reminiscent of corporate welfare hardly seems to be "the invisible hand of the market" -- unless he really meant "invisible handouts of the market." Actually, he wasn't even a fan of the concept of "corporations," having had a rather pessimistic view of how their managers would behave, and the recent follies do make one wonder.

Bear Stearns' (NYSE: BSC) hasty sale to JPMorgan Chase (NYSE: JPM) has given us all major philosophical questions to chew on. Although the Federal Reserve has insisted that its guarantee of the $29 billion in loans doesn't constitute a "bailout," Bear was not allowed to fail as the logic would have dictated. And now, former Fed Chairman Paul Volcker has even come out to say that the move has put the Fed at "the very edge of its lawful and implied powers."

Past is prologue
There's nothing new under the sun, and in fact, in the book Corporate Governance, Robert A.G. Monks and Nell Minow chronicle some of the best-known corporate bailouts.

We've experienced the "too big to fail" philosophy before. The book gave some prime examples, including Lockheed Aircraft (now part of Lockheed Martin (NYSE: LMT)) and Chrysler (now owned by Cerberus Capital Management and Daimler (NYSE: DAI)) in the 1970s. The thought of so many lost jobs (and votes) -- not just from the corporations themselves, but also from suppliers and dealerships and so on -- was truly daunting for politicians and governmental entities, and both companies were given large government-guaranteed loans to stay afloat.

Long-Term Capital Management is an even eerier example. The Fed orchestrated a bailout of that major hedge fund in 1998. According to Corporate Governance (and amply discussed elsewhere, since it's a common example), "The Fed intervened because it was concerned about possible dire consequences for world financial markets if it allowed the hedge fund to fail. ... The Federal Reserve denied it was a bailout, because it did not use public funds and because LTCM investors were not made whole."

Sound familiar? Also interesting is that many major financial firms bailed out that hedge fund, but Bear Stearns declined to participate. Another notable similarity is that critics wondered whether the bailout would simply pave the way for entities to take on similarly dangerous risks down the road. What do you think?

Ensuring cushy, soft landings isn't the path to a truly competitive marketplace. These examples also illustrate the political pressure to save companies that have shirked their responsibilities to their many stakeholders, even if it seems like calling the fire department to save the dead wood (which of course, thwarts new growth and provides kindling for even bigger fires down the road).

It's no joke after all
The free market can seem chilling, but isn't the "scary" part a key motivation to think smart, act ethically, and mind the store? That's why it drives me crazy that those who seem to love the "free market" in good times (big cars! big mansions! big bonuses!) don't mind a big bailout when things turn south.

I'm no economist. What I am, however, is an ardent fan of the free market, and of the principle that solid, well-run, and highly competitive companies not only survive, but also thrive, on their merits. Those are the companies I want to invest in, not the ones that rely on some combination of factors like size, weak governance principles, and politically motivated government intervention to ensure that everything will be OK -- all the while giving ample pay to top managers for failure!

I will still search for those strong companies to invest in, especially since the market's bearishness has presented opportunities, but I can't shake the idea that today's serious issues deserve contemplation. "Moral hazard" seems to be seriously undermining free-market economic philosophy and a truly competitive marketplace, and I fear we're poised on a very slippery slope, indeed. Let's hope we can collectively back away slowly and start walking the talk on the principles and values that truly make us strong.  

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.