As a good free marketeer, I love failure. It's something inevitable in the market economy, where there's no job for life. From time to time, businesses are overwhelmed by the competition, or simply make mistakes, and they fail. But new ones come along, so nobody gets too agitated about it.
Unless of course, they are big. Then the politicians step in, concerned about the political effect of job losses. When they are big financial institutions, the politicians are even more agitated, in case they also bring down other businesses that depended on them for finance. That's why the UK government nationalized Northern Rock and the US bailed out Fannie and Freddie.
The UK and US authorities have also been encouraging mergers to save big financial institutions, like HBOS and Lloyds TSB last week. But in so doing they create even bigger financial institutions, which ups the stakes even more when things go wrong again.
The regulators are on an impossible spiral. Regulation has grown more and more onerous, forcing financial firms to merge in order to absorb the cost. That created larger institutions, which couldn't be allowed to fail. And it reduced competition, making them less nifty and actually more likely to sink when they hit troubled water.
Now the regulators are going round the spiral again, creating yet larger institutions. You have to ask, though, whether even governments will have enough cash to keep these monsters afloat when the waters next get choppy.