The [Occupy Wall Street] protesters are right about one thing: Washington has been coddling Wall Street. But they have missed the most important way that Wall Street lives off the rest of us. ...

There is a much more important, albeit quieter, favor Washington has been performing for Wall Street over the last 25 years: When large financial institutions get into trouble, policymakers make sure that their creditors receive 100 cents on the dollar [6].

The economist Milton Friedman liked to point out that capitalism is a profit-and-loss system. Profits encourage risk-taking. Losses encourage prudence, which is just as important. Over the last 25 years, however, government policy has been laissez-faire when it comes to profits, and socialist when it comes to creditor losses.

If the protesters want to fix the symbiosis between Wall Street and Washington, the first thing they need to do is recognize the disease. The disease is not too much capitalism but too little. If firms that fund bad investments by other firms lost all their money, they would either disappear or learn to be more prudent. Washington needs to be less involved with Wall Street, not more. We need less crony capitalism and more of the real thing. We need to demand of our politicians that they stop bailing out losers 100 cents on the dollar. If we keep subsidizing recklessness, we will keep getting more of it, and the rest of us will pay the price.

Emphasis mine. Read the whole thing. Via Occupy Wall Street and Washington's History of Financial Bailouts.