The side fell to its fifth straight loss last night, at Carisbrook, and Mooney said it was let down by ill-discipline at vital times.
"We would get good field position and secure some ball and score some points and then concede a couple of soft penalties which would let them [Taranaki] get away on us again," he said.
"The players have to realise they are not only letting themselves down but are also letting their team-mates down.
"We are capable of playing some good rugby but the fact of the matter is we lost. You can't change that."
Mooney said Otago had made an average start and although there was doubt about Taranaki's second try, those things happened and players just had to accept the decision and move on.
"You can talk about luck but it is not luck. You've got to just get better."
Otago remains bottom of the ITM Cup and has little hope of making the top seven.
The side now has 10 days off until its next game and Mooney said players had to face up to what had happened.
"No-one else can dig ourselves out of this hole except us. Of course we are capable of doing that but the mental aspect of this game is huge."
Mooney had praise for new first five-eighth Hayden Parker, who made his debut off the bench, while he felt Brad Cameron, filling in at openside flanker, showed plenty of commitment.
Mooney also said blindside flanker Adam Thomson was outstanding, coming off a heavy training camp with the New Zealand sevens team.
Otago captain Alando Soakai missed the match because of a back strain but is hopeful of making the next game, against Hawkes Bay on September 5.
Kees Meeuws took over as captain last night, the first time the 36-year-old has skippered Otago.
Meeuws said when the side backed itself and decided it could play rugby it looked good.
"But then we'd go back into our shell, and do something dumb, give away a penalty and it would cost us," he said.
"Collectively as a team we need to grow up and step up . . . If we stick to our game plan we can compete with any team."
