Punitive Measures

Ben Bernanke believes that there should be no punitive measures for firms that participate in the bailout. But as Matt Yglesias points out, "if some measure of bailing out is truly necessary then the money will be provided, but it shouldn’t just become handouts for bankers. Punitive measures mean that only firms that genuinely have no alternative will enter into the program, and their corrupt or inept managers will be duly punished."

This is basically how the IMF works for entire countries. The IMF doesn't force itself on countries, but if the countries want to receive loans from the IMF, presumably because their credit is so bad nobody else will lend to them, then they have to meet several preconditions and change the way the economy works in order to get the loans.

While the shape the bailout will take hasn't been set yet, it seems to me that the IMF is probably the best model for it. As Matt says, if there are no punitive measures, then it's just free money, a handout it you will (we all know how much Americans hate handouts) If there are punitive measures then companies will be forced to behave in a more responsible manor, rather than taking risks that they shouldn't take and expect to get free money to fix their mistakes.