Let’s get real – when you take out a loan, there is a trust relationship between you and the lender. Sadly, misguided policies from Barney Frank, and others in Congress, allowed lenders to distort their side of the equation and offer loans that some folks were not qualified for. The real responsibility, however, is on people who take bigger loans than they came realistically pay back. In the 90′s I was offered over 2 times what I could afford when I purchased a home. Those less responsible would take the bank up on it.

When banks or individuals make bad decisions there have to be consequences. Bankruptcy (possibly for both parties) is one of them. The TARP bail out distorts this basic reality under the guise of keeping our system from collapse.

When companies fail due to bad decision making, failure is not only an option…it’s the right one. People who don’t pay bills file bankruptcy and aren’t allowed to borrow for many years. That’s a good thing, because it keeps untrustworthy risks out of the credit market and protects low credit prices (interest rates) for those of us who do pay our bills. Similarly, when failed banks are allowed to actually fail, we are stronger for it. Mistakes are learned from, the market gets more cautious and the remaining companies get additional market share because they have earned it. This all happens quite naturally without government intervention.

Given the amazing “success” of TARP I, Congress is going to do it again, with TARP II. I’m against it. It’s more government picking of winners and losers and more needless interference in a system that isn’t broken. This time it’s small banks. If any bank isn’t lending, the decision is up to them. If the bank doesn’t feel the credit risk is reasonable, they have every right to not make the loan. Why would we want to pressure them to do otherwise? Did we not learn our lesson yet?

In case it’s not clear, I’ll repeat: When businesses and individuals are permitted to succeed *and* fail on their own merits, the system is showing that it works.