CIT Group has filed for bankruptcy.  Never heard of them before today, but apparently they are big.  And they owe me (us, that is the U.S.) money.  Ok, so it’s only $2.3 billion, but we stand to lose all of it and I’m left wondering, why?  Why did our government lend them the money to begin with?

You see, the thing is, CIT provides short-term loans to a lot of small businesses; the kind of loans that allow them to purchase inventory and make payroll and all those other things that keep the economy humming along.  When the financial system went into meltdown mode and the credit markets froze up a big concern was that without these kind of loans the economy in general would collapse.  So we bailed them out; the banks that is.  But the credit market has continued to be very tight.  Much of our capital investment has not translated into easier credit greasing the gears of the economy.  And big banks and financial institutions continue to fail, taking our money with them.

So why not cut out the middle man?  Create a government bank to lend directly to small businesses and keep the economy moving.  By following reasonable lending policies the risk would be minimal and diversified  (No $2 billion losses.)  The interest rates would need to be low enough for small business owners to make the payments and still make a profit, but should be set high enough for private banks to undercut the government.  It would be a sort of “bank of last resort.”  Always ready to lend to credit worthy businesses.  Never needing to pay huge executive bonuses.  Heck, we might even make a little money off of it; you could call it a tax cut!  The bottom line is lending directly to the small business owners who hire the workers who make the product in “gross domestic product” would actually invigorate the economy.  And isn’t that the point?