Letters to the Editor
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Bailouts are Bad Because
A government bailout removes the downside risk from an investment. By removing risk, all future investments decisions are made with the risk side of the equation discounted by the perceived probability of a bailout. Therefore, if you bailout today, risk will increase in the future.
In your hypothetical scenario, it is fine to let either of those business go under. The underlying need for water and rail transport will result in a new firm rising up to provide the services. These new firms will also likely price higher, and engage in other actions that protect them from the risk of failure. These new firms will provide rail services and water in a sustainable way. If you bailed out the old failing firms, you would prevent the new firms from doing a better job.