A big difference between socialism and capitalism is the criterion upon which they judge success. Capitalism aims for being being a little better than everyone else with whom one competes for capital, while socialism shoots for being just good enough in the absence of competition.
Technological and economic progress entail risk, and mismanagement of these risks is largely responsible for the current financial difficulties. "Bailouts" exacerbate the conditions leading to such strife, because they essentially make risks irrelevant. Artificially insulating enterprises from the inherent risks of their activities simply subsidizes foolhardiness.
Socialized enterprises eventually stagnate because such systems seek to distribute risk rather than compensating individuals and organizations for taking the risks associated with progress. Socialized enterprises become risk averse paradoxically because, in order to distribute risks, they forego the incentives for talented people and organizations to run risks for proportionate rewards. Socialization loses the optimizing effects of competition, and socialized enterprises sag inevitably to lethargic mediocrity.
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