I keep thinking about TARP and I’m persuaded that Chapter 11 is better.

Maybe it’s time to stop the trick-le of bailout money to the moribund. Put all failing banks and companies into Chapter 11. The bankruptcy laws are adequate: equity holders, who took risk knowingly, get zero; bondholders get the company, which then restructures and can go about its business. Replace many of the people at the top: these guys are already too distracted with trying to save their own skins and reputations to do a good job. They’ve been burned and can’t forget it soon. New people and a clean start is the right capitalist solution — take risk, suffer the consequences. Then the government can help the new equity holders go about their business of creating credit again.

Never been a libertarian, but I think creative destruction is the right thing at this point. It would put an end to the drip drip drip, and to the sight of formerly evangelistic free-marketsters now asking for government help to survive.