By Theo Vermaelen and Christian Wolff
In the recent financial crisis, taxpayers in many countries had to pick up the bills that resulted from governments bailing out banks. The idea that the government will save you if you make mistakes encourages excessive risk-taking. Bailouts have created popular resentment against bankers’ compensation, which makes it difficult to pay competitive salaries after a bank is rescued. So bailouts, which also add to the government deficits and crowd out other government spending plans, have many undesirable characteristics.