The US government is moving on financial firms that are "too big to fail" and where the government has no choice but to "rescue" them when they get into trouble. Its plan is to make it easier for the government to seize control. The Financial Stability Improvement Act needs to be considered carefully.

The problem with the legislation is that it enshrines a system where taxpayers will be funding future bailouts. But isn't the problem that the banks got too big in the first place? Wouldn't it be just better to break them up, as Alan Greenspan and Bank of England Governor Mervyn King have suggested. It's something I covered yesterday here. You make the banks smaller so they aren't too big.

Douglas Elliott from the Brookings Institution raises other concerns. First, the bill specifically forbids the government from publicly identifying the affected institutions because that federal guarantee would give them an unfair advantage. But the public has a right to know, particularly when it's their money. It also increases the Fed's power.

As Chidem Kurdas says in the Wall Street Pit, it's just going to make the problem worse by enshrining government intervention in the market.

And the problem is that when the disaster strikes again, people will turn against the market. As British economist John Kay writes, it's impossible for regulators to prevent business failure and they shouldn't even think about it.

Kay writes: "The essential dynamic of the market economy is that good businesses succeed and bad ones do not. There is a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure. It was badly run, it employed greedy and overpaid individuals, and the services it provided were of marginal social value at best. It took risks that did not come off and went bust. That is how the market economy works."

And the problem, he says, is that it will get ugly when the financial system goes pear-shaped again. "When the next crisis hits, and it will, that frustrated public is likely to turn, not just on politicians who have been negligently lavish with public funds, or on bankers, but on the market system. What is at stake now may not just be the future of finance, but the future of capitalism."