So Warren Buffett calls Hank Paulson and suggests a preferred stock scheme to bailout banks. Hank bites, Warren buys—having designed a way to make big on too-big-to-fail—and ultimately pockets a few billion in profits.

Just last week Mr. Buffett, on CNBC, tells the world that TARP will be chronicled as a success. Well, I don’t know about that, but I do know that it was a wonderful thing for Buffett.

Here’s Buffett on what inspired him to invest a few billion in Goldman Sachs, note the “Paulson proposal”:

If I didn’t think the government was going to act, I would not be doing anything this week. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal. Last week will look like Nirvana if they don’t do something.

So Bankers stay rich, Buffet gets richer, and moral hazard remains—all on the taxpayer’s dime.

Here’s a little something I penned last year on moral hazard:

In Ayn Rand’s book The Virtue of Selfishness (Rand & Branden 1964), she made brief reference to people with a rare condition that renders them insensitive to pain. My immediate thought upon reading her reference was how such a condition might be analogous to the players in the 2008 credit crisis. So I did a little research. And while it was easy to make my point in the following, I must say that the articles I read and the videos I watched on congenital insensitivity to pain with anhidrosis syndrome (CIPA) were anything but easy to take in; in fact, they were utterly heartbreaking. There are precious children in this world (seldom surviving childhood) who are otherwise as vibrant and beautiful as children can be who literally feel no physical pain. I would never have imagined how truly tragic this turns out to be.

Pain Is Essential
How would you like to be one of the few hundred people in the world who live literally pain free? Never to experience a headache, a bad back, or pulled muscle. Never to need a pain pill, not even an aspirin. To never suffer the aches of an aging body. Think about it: the sheer bliss. The excitement. What would you try? What risks would you take, knowing you’d feel no physical pain?

How would you like to have been a CEO of a major Wall Street firm at virtually anytime over the past thirty years? Your senses numbed by the knowledge that Uncle Sam would steal away your pain if you banged your head too hard. Knowing you could lever-up to unheard-of multiples and never truly lose. Stay in business, get your bonus, pay the staff at your Swiss chalet—or, at the very worst, walk away with a few dozen (if not a few hundred) million, while the taxpayer buys the mistakes off your firm’s balance sheet. Leaving you, or your successors, with billions of crisp new dollars with which to leverage the next bets. My, the risks you would take.

Better to have been the latter. For while the notion of never feeling physical pain may, at first blush, seem amazing, the lives of children with congenital insensitivity to pain with anhidrosis (CIPA) are anything but. Their fingertips are missing, their tongues are mangled, they get heatstroke often (they don’t sweat), fractured bones go unnoticed, and, tragically, their lifespans are shortened. Parents of the CIPA child never rest. They can’t turn their backs for a second, for there’s no physical limit to the harm their child might inflict, unwittingly, upon himself.

As for the Wall Street exec of 2008, he maintains ten finely manicured fingertips and suffers zero fractured bones. Not that his reckless actions didn’t inflict great pain; on the contrary, they did indeed—just not, alas, onto himself. The unavoidable (natural) consequences of his egregious risk-taking and overleveraging were relegated, at the hands of politicians and central bankers, to the taxpayer.

As for the moral hazard of bailouts: they’d have us believe that with all the new regulations, too-big-to-fail is no longer a possibility—that, like the CIPA parent, Washington has Wall Street under strict surveillance. But make no mistake: mistakes will be made. As long as we persist in appointing career politicians concerned with merely the immediate term (their term in office, that is), Washington will crony-up to corporate America, unions, etc., and vice versa.

Simply put: pain in life, and in business, is essential.