In trying to make sense of our recent financial difficulties, a key point that most commentators miss, is that capitalism is not merely a profit system, but a profit and loss system. As unpleasant as the losses may be, they serve a therapeutic function of utmost consequence. By withdrawing that therapy, such policies as TARP, ZIRP (zero-interest rate policy), quantitative easing, and too-big-to-fail, socialize the losses of — you guessed it — the cronies of those who wield power.
As bad as crony capitalism is in its own right, it does further damage by sullying the name of free-market capitalism, the most productive economic arrangement known to man. This adds “injury to insult,” since if free-market capitalism is the cause of our problems, then the solution must be greater regulation, which generally provides even more scope for the favoritism and corruption that characterize crony capitalism.