Economists surveyed by the Panel raised severe concerns about moral hazard. The Panel sought the input of four prominent economists on the effectiveness of the TARP. These experts generally agreed both that the TARP was necessary to stabilize the financial system and that it had been mismanaged and could pose significant costs far into the future. Further, the economists unanimously felt that the program created significant moral hazard. TARP offered its funding on relatively generous terms, without requiring participating institutions to enter liquidation or receivership, remove failed managers, or wipe out existing shareholders. The fact that the government chose not to impose such stringent costs meant that the TARP's moral hazard costs were much greater than necessary.
In general capitalism is a profit and loss system. When failed firms are bailed out by the government and don't ever realize their losses, does anyone believe those losses simply evaporate? Or are they merely shifted somewhere else, somewhere less visible. Future tax payers are almost certain to feel some of these losses as they pay down the debt incurred to rescue our financial system.