That's pretty offensive, if you ask me, -the notion that realizing loses is 'monstrous'... What benefit is it to the taxpayer that a bank should be able to invest in derivatives? To the extent that it it to the taxpayers benefit, the taxpayer might be expected to cover some losses.
The concern of course on whether the government should intervene or not is how much impact would a default have on the trading partners. If there is enough exposure to really jack the economy, then I would support government recapitalization. Of course, there needs to be severe consequences to that recapitalization in terms of regulatory, management, and ownership changes.
I agree, and this was exactly the case with the U.S. bailout. Only we forgot the "severe consequences to that recapitalization in terms of regulatory, management, and ownership changes" part...
http://www.nytimes.com/interactive/2011/10/23/sunday-review/...