John Stossel‘s latest column discusses one of the key problems associated with an over-reliance on government. He imagines a world with no bank bailouts.

Today, taxpayers would be $1 trillion richer and not on the hook for trillions in loan guarantees. Prices would now have found a natural floor, business would be eagerly hiring again, and America would be free of moral hazards like “too big to fail” banks.

What do I mean by “moral hazard”? I once built a beach house on the edge of the ocean — a very risky place to build — but I did so because federal flood insurance guaranteed my investment. Eventually, a storm swept away my house, but I didn’t lose a penny. Government “insurance” covered my loss. Thanks, taxpayers!

Now that I’m wiser — and more libertarian — I’m ashamed that I took your money and understand that the whole program is a mistake. The same government that worries about global warming causing flooding spends billions to compensate risk-takers who live next to oceans. That’s moral hazard.

But beachfront property owners have political connections. They make desperate calls to legislators. Politicians respond to whoever screams loudest.

When the housing bubble burst, politicians got panicked calls from their friends on Wall Street — in many cases former colleagues. Instead of letting their old friends take big losses and trusting smaller banks to expand and take their customers, the political class propped up risk-takers who made bad bets.

It’s not that those who move back and forth between Wall Street and government are evil. But when you are close to a problem, you are quicker to panic. A few years back, brilliant scientists who studied SARS or bird flu sincerely thought a mass epidemic was coming, and therefore government had to “do something.” (It didn’t hurt that “doing something” meant spending more on their area of research.)

In 1999, computer techs really believed computers would freeze when the calendar turned to 2000, causing planes to fall from the sky. Killer-bee researchers were convinced bees would sting us to death. Anti-pesticide environmentalists, flesh-eating bacteria researchers and today’s global warming fanatics are all sincere in their fear.

But unlike Wall Street bankers, none could confiscate a trillion of your dollars and give them to their cronies. Believe me: If Al Gore could have done that, he would have.