Bailouts and Moral Hazard

For an economist, bailouts raise a lot of red flags regarding incentives. Wikipedia defines moral hazard as:

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

The problem with bailouts: If the expectation is created that the government will bail out firms experiencing economic hardship, they will pursue riskier opportunities than they would otherwise. Of course there is no free lunch, taxpayers end up bearing the cost burden of the now risk enhanced behavior.