Reminisce with me for a moment, comrades. In just the past year, the government has imposed bailouts in the following amounts:

  • Bear Stearns: $29 billion.
  • Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE): Up to $200 billion.
  • AIG (NYSE:AIG): $85 billion.
  • Mother of all bailouts: $700 billion.

These bailouts should be about as welcome as malaria. I've read the Constitution. Nowhere does it say that taxpayers are the default dumping ground for mortgages made to people who can't afford them. Nowhere does it say the government shall back all derivative ventures gone astray. Nowhere in the Bill of Rights does it say you have the right to be left holding the bag.

And that's just the beginning
If I had to guess, I'd say there's more to come. GM (NYSE:GM) and Ford (NYSE:F) are itching for tens of billions, too. And what a shame it is -- every penny of taxpayer money used to bail out institutions overrun by greed and speculation is an embarrassment. It's dumbfounding. It's a tragedy and an absolute insult to capitalism.

Alas, it happened. The big questions on taxpayers' minds now should be: Can we really afford all of these bailouts, and are they worth it?

Ha! Please ...
The answer to the first one is too easy ... absolutely not. Of course not. Don't let the government fool you into thinking it has a bank account with trillions of dollars waiting to be used for bailouts. The source of these funds will come from the same mechanism that caused the problem … excessive borrowing. We're already swimming in nearly $10 trillion of national debt. The budget deficit this year alone is expected to approach half a trillion dollars -- and that was before last week's bailouts. Can we afford bailouts? The question is almost insulting. We couldn't afford our way of life before bailouts.

The concept of "No such thing as a free lunch" rings loud and clear these days. Where will this bailout money come from? The printing presses. What happens then? The dollar falls, inflation rises, and thoughts of Zimbabwe and the Weimar Republic begin to haunt you at night. Connect the dots, and someone is always left holding the bag. In the event of taxpayer bailouts, that someone becomes you. It's sickening.

Sickening, yes. But let's not get too carried away with how things "ought" to be. I can think of a lot of things in this world that ought to be different. The responsible thing to do is address what is happening and do what's necessary to put an end to it. No amount of kvetching will make the CDOs, MBSs, subprime Ninja, no-doc, and neg-am mortgages disappear. The real question that needs to be asked is: "Are these bailouts really necessary, and the best option?"

Oh yes, I happen to think they are
It's easy to say "no company should be too big to fail" or "they dug their own grave, let them pay the price." And you're absolutely right.

But again, let's acknowledge the difference between "shouldn't be too big to fail" and "is too big to fail." Bear Stearns was counterparty to derivatives with notional values worth $2.7 trillion ... with a "t." About 20%, or $1.5 trillion, of all Mac and Mae securities are owned by foreign investors who could sign the U.S. dollar's death certificate if they wanted to. No, they shouldn't have been allowed to get that big and that interconnected. But the fact is, they did. Don't blame Hank Paulson or Ben Bernanke … blame these guys.

The same people who complain about the onslaught of bailouts lack the imagination to consider what our economy would look like if Bear Stearns or AIG had to unload mountains of credit-default swaps. Or if Mac and Mae were allowed to fail and foreign investors gave up on the U.S. economy. Or if Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) were allowed to implode last week. Remember the battle scene from Braveheart? It'd look something like that. Yes, printing money for bailouts could wreak havoc on the economy. The problem is, had the financial system collapsed, there might not have been an economy left to wreak havoc on.    

But of course, I'm just guessing. What's history say about these events?

There was another period of time when the financial system was allowed to collapse and banks were allowed to fail left and right. The ensuing period was so horrific, no one dares to call it anything less than the Great Depression. Again, I'm not pro-bailout. I'm pro-reality.

Bailing out companies that dug their own grave isn't good; it's just the lesser of two very extreme evils.

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Fool contributor Morgan Housel doesn't own shares of any of the companies mentioned in this article, save for the ones he owns indirectly as a taxpaying, bailout-participating citizen. JPMorgan Chase is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.