In this case, it's just due to sunk costs. You've already given this defense contractor a trillion dollars. Ten years later, the contractor has a flawed project with a lot of holes in it... but what can you do? If you cut them off, then you have this shitty product that you've already spent a trillion dollars on. Getting someone else to fix it (or develop something else entirely) would cost even more. So you grit your teeth and pay them the 200 billion that they need to redesign and fix it. And then, when they still have a fucked up product a year later, you're facing the exact same problem... except now you've spent 1.2 trillion dollars.

The interesting thing is that in the long-term, it's actually a good idea to tell the contractor to fuck off. The contractor then goes out of business, and the rest of them change their tune really fast. Meet your fucking deadlines, or we'll cut you off regardless of the cost. The end result would be much more realistic cost estimates, better timelines, and a much smaller chance of fuckery. Of course, tell that to the project director who is getting hounded by Congress and is looking for the most cost-effective (short-term) way out.

In the brokerage and bank case, it's due to the government saying, "Well, we can go off of principle and tell them to go through bankruptcy like everyone else. But if we do that, then the economy will tank and we'll be looking at trillions of dollars in damages. So we'll pay the couple hundred billion dollars that we need to keep that from happening."

Unfortunately, that leads to the exact same thing as the contractors - these banks say, "Well, then all we need to do to get free money from the government is to get into the position where it costs more money to do the right thing than pay us off for making bad decisions!"

It is also due to capping the profit on a contract. The only way to make more money is to enlarge the problem. Some general wants a gold-plated titanium feature? "YES SIR!" "Here is the change order for your signature, SIR!"

Yet if you don't cap the profit, there is incentive to cut corners. So you lose, or you lose.

And the really fun thing is that if our early-mid WWII torpedo experience is any guide, it's worse when the government does all the designing, testing and manufacturing.

Not so much that they screwed up, every major power had problems with their torpedoes when they entered the war. But in e.g. the case of the Germans they properly investigated and cashiered two officers responsible. It took the guys at the sharp end of the spear in Hawaii proving e.g. that the contact firing pin binded in its housing when hit square to get any corrective measures. (The torpedo also swum too deep and the magnetic fuze didn't work in that part of the world vs. the Atlantic near New England.)