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Yesterday, the investment bank Goldman Sachs announced its third quarter profits, a whopping $3.2 billion.

Commentator and economist Russ Roberts is not impressed.

RUSS ROBERTS: Should we care about Goldman's profits and compensation? It's pretty gauche when your take- home pay is millions of dollars while some of your neighbors can't find work. But is it wrong? Is it something those of us on the outside should care about? Normally I'd say it's nobody's business. What people get paid is best left to the marketplace.

But Goldman Sachs is different because those of us on the outside are really on the inside. Goldman Sachs was propped up with our money - not the money they took directly from the government and paid back, the money that AIG gave them that really came from the taxpayer.

Goldman Sachs being proud of their performance this year is like the Harlem Globetrotters bragging that they went undefeated. It's not really a normal competition.

G: They made lousy investments financed with borrowed money. When the assets fell in value, Bear and Lehman died. They were reckless with other people's money. But Goldman Sachs is still here. Why?

Part of the reason is that maybe they took a little less risk and maybe hedged against that risk a little better. But part of the reason Goldman lives and thrives is that the government bailed out AIG. Almost $13 billion of the money the government sent to AIG went out the door and over to Goldman. This money included loans and insurance Goldman bought on its bad bets. Some of that insurance turned out to be a bad bet, too, but Goldman didn't bear the cost. The taxpayers did.

Part of the reason Goldman and other Wall Street firms made so many bad bets is they knew they might be rescued, and most of the time they were. The rescue of large financial institutions is justified by policymakers as a way to save the system and protect Main Street from a tsunami of financial instability.

But capitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. If the taxpayer almost always eats the losses for the losers, you don't have capitalism - you have crony capitalism.

The latest rescue of Wall Street has taken hundreds of billions of dollars from average Americans and given that money to some of the richest people in human history: People who made bad bets and should've taken enormous losses. Instead, they've been taken care of. Their triumph makes Bernie Madoff look like a small-time operator.

The key policymakers, Hank Paulson, Ben Bernanke and Tim Geithner have been praised for keeping things afloat, but to what purpose? What's the virtue of saving crony capitalism? Maybe they prevented an even worse recession. There's no way of knowing. But they have deeply damaged both capitalism and democracy.

We have a financial system that not only rewards cronies and encourages recklessness, it also funnels precious capital into areas like the housing sector instead of into more productive investments. We have to stop rescuing the reckless. We have to let people who make bad decisions bear the consequences. Profit and loss. The rest of us live that way. Wall Street can, too.

NORRIS: Russ Roberts is a professor of economics at George Mason University. He's also a research scholar at Stanford University's Hoover Institution. To comment on this essay, go to the opinion section of npr.org.

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