In his 1996 State of the Union address, President Bill Clinton announced, “The era of big government is over.” Beginning in 2008, the era of big government bailouts began.

By some estimates, the U.S. government and the Federal Reserve Bank have spent, or committed to spend, $12 trillion to try to stabilize the financial system and revive the economy. The unprecedented scale of such governmental intervention speaks to the enormous scope of the economic and financial crisis.

Many iconic financial institutions have outright failed, or managed to cling to life only due to largesse from Uncle Sam. The nation’s largest savings bank failed, the nation’s largest insurance company is on life support, and the nation’s largest mortgage lenders are in conservatorship. The five largest investment banks converted to commercial banks, were folded into stronger institutions, or entered bankruptcy. Several of the largest commercial banks remain in business today only because of massive capital infusions from the government.

U.S.-style capitalism traditionally has provided rewards to risk-takers, but the bailout of the banking system appears to have left U.S. taxpayers holding the bag for risks they did not take, and rewards they did not receive. The populist backlash is not surprising, amidst rising unemployment and declining 401k and real estate values, as citizens suffer bailout fatigue and politicians echo their frustration.

The case for tapping the American taxpayer to rescue the banks is, in its essentials, very simple. The only thing worse than this use of public funds would be withholding funds.

The crisis in financial markets arose in significant part from easy credit conditions and low interest rates earlier this decade. Low interest rates enabled home buyers to borrow more money and, on the flip side, encouraged investors to buy riskier bonds in search of higher yields. Wall Street supplied the financial engineering that helped borrowers and lenders find one another, fueling the enormous but ultimately unsustainable increase in real estate values.

The beginning of the end of this era of excess was visible in early 2007, when hedge funds investing in subprime mortgages began to report losses. Midway through the year, financing for leveraged buyouts started to dry up, and credit markets tightened through the second half of 2007. The financial crisis picked up steam in 2008, and the government’s response, initially, was piecemeal and reactive. In March, Bear Stearns was on the brink of failing, when a takeover by JP Morgan was hastily arranged, with government guarantees. In July, the FDIC took over failing IndyMac bank. By September, it was clear that the government-sponsored mortgage enterprises Fannie Mae and Freddie Mac were irreparably weakened, and were placed in conservatorship. The crisis peaked as Lehman Brothers faced a liquidity squeeze and was permitted to fail.

Lehman’s bankruptcy, with over $600 billion of defaulted debt, led directly to problems in money market mutual funds, and to AIG’s desperate straits. Markets around the world were experiencing the equivalent of a global nuclear meltdown as September drew to a close.

The transfer of Wall Street’s crisis to Main Street was profound and immediate, and what had been a mild recession quickly became one of the most severe of the post-war era. We continue to witness the consequences of the freezing up in financial markets.

Central to the functioning of a free market system is the availability of credit, and it is the banking system that is the means of transmission for credit. The Federal Reserve Bank and the Treasury Department rightly understood two matters: how deeply impaired credit markets had become, and how critical it is to restore them to health.

Thus, an almost bewildering array of programs and initiatives has been put in place, with such forgettable acronyms as TARP, TALF, PPIP, and so on. And each has legions of critics, some of whom say they’re inadequate, and others who say they’re excessive, or unnecessary altogether.

It is tempting to say that in a free market system, those who have destroyed capital should bear the consequences. Popular rage at bonus compensation for AIG employees encapsulates such a response. Similarly, many citizens are outraged at programs designed to assist over-leveraged homeowners who purchased over-priced homes they could not afford.

American financial history records alternating periods of laissez-faire capitalistic exuberance and sober big government regulation. But it also records a long evolution of increased government involvement in managing the economy, in order to minimize the duration and the depth of economic downturns. The financial panic of 2008 presented the greatest threat to economic stability since the Great Depression. The government’s response, at such enormous expense, may well have many long term and potentially unintended negative consequences, but in the fullness of time most people will likely conclude that it is a superior alternative to utter financial chaos.

Jeffrey Fisher, a Tarrytown resident, is Chief Investment Officer of Quadrant Capital Management.