Much has been written on the debate about the “moral hazard” of bailing out mortgage giants Fannie Mae and Freddie Mac. Economists use this term to apply to situations where a party believes it won’t have to face the full consequences of its actions. In the financial markets, moral hazard encourages big bets because somebody else—taxpayers—bears the brunt of losses. In other words, when you protect someone from risk, the other party become reckless.

In a recent Chicago Tribune article by Greg Burns, “Moral hazard may prove steepest cost,” finance professor Anil Kashyap, University of Chicago’s Graduate School of Business, stated, “It goes to show you that when things get nasty, just go to the government,” Kashyap said. “The next time there’s an industry, a city, a large firm in trouble, you’ve blown the ability of the government to say, ‘No.’ ”

In Kashyap’s view, the Fannie and Freddie deal sends a particularly dangerous message because it was so predictable.

For decades, the giant mortgage-financing companies made hay off the assumption that the government would stand behind them in the event of trouble.

Their stocks have crashed now, but the companies enjoyed some heady times in the markets of the past. They paid out dividends to investors and rich bonuses to executives and directors. They also spread around money to politicians, country bankers and others whose favor they sought.

All the while, responsible voices in the Federal Reserve, Treasury and financial markets were complaining about the risks. Those voices were drowned out as Fannie and Freddie became bigger and bigger players in the highly leveraged U.S. housing market.

By the time Freddie and Fannie took steps to boost their capital levels, it was too late, and a bailout became the only reasonable alternative to an utter meltdown.

“It was a real failing of the public trust that they weren’t able to force them to raise capital years ago,” Kashyap said.