That's only true if they're continuing to make poor investments. All we know is that lots of companies made poor investments in the past. Letting them fail doesn't change that past, nor does bailing them out necessarily reduce the quality of future investments.
If the person I originally replied to is implying that the current bailouts create too much of a moral hazard, then that's a possibility, but that one sentence that was given doesn't do the issue justice.
Have you seen the share prices lately for the companies that have needed the bailout? Citigroup's stock is down almost 95% since mid-2007. The equity holders have been wiped out. The poor investments don't need to be honestly documented for that to happen. If you know that poor investments have been made, so does the market.
What I mean by wiping out is that the company ceases to exist, its stock is deregistered, and a successor company is created by the bankruptcy receiver. Stockholders in most financial companies have not experienced this, because the government regulators have decided to prop the banks up as zombies.
Suppose a consortium of Arab investors decided to believe Citi's current published balance sheet, and bought $500M of newly-issued Citi common stock at US$2.00/share, a nice discount from its $3.40/share market price. They would most likely lose every penny of that investment when Citi fesses up to the true losses.
Of course the big money investors are no longer that foolish, having been burned several times by U.S. bank "recapitalization investments" in 2007/2008. Everybody is waiting on the sidelines for honesty to develop. This flight of capital has been billed as a liquidity crisis by the Wall Street hucksters, and used to justify mammoth bailouts, but in reality it is a solvency crisis and there is an ocean of hot money itching to be spent on honest companies.
If the person I originally replied to is implying that the current bailouts create too much of a moral hazard, then that's a possibility, but that one sentence that was given doesn't do the issue justice.