Breaking the bailout habit

The biggest bankruptcy filing in U.S. history had a predictably negative effect on financial markets around the world Monday, including a steep stock-price dive on Wall Street. The question now is how much long-term damage that bankruptcy, which signals the collapse of the massive investment firm Lehman Brothers, will do to the U.S. and global economies.

But the question of whether the federal government would bail out Lehman Brothers, as it bailed out investment giant Bear Stearns six months ago and "government sponsored" mortgage giants Fannie Mae and Freddie Mac nine days ago, evidently has been answered correctly.

Treasury Secretary Henry Paulson reiterated a resounding "no" to the question of a federal rescue for Lehman Brothers Monday, telling reporters during a briefing at the White House: "The situation in March and the situation and facts around Bear Stearns were very, very different with what we were looking at in September. I never once considered it appropriate to put taxpayer money on the line in resolving Lehman Brothers.''

In a column on this page, The New York Times' Paul Krugman, a Princeton University economist, justifiably calls for long-overdue strengthening of regulations on the financial industry.

He also warns that Mr. Paulson's decision not to save Lehman Brothers will prove to be either "brave or foolish."

Yet such a decision had to be made at some point. Washington can't afford to keep committing tax revenue and absolving executives of the responsibility for their mismanagement with such bailouts.

Former Federal Reserve Chairman Alan Greenspan made that practical point Sunday on ABC's "This Week": "We shouldn't try to protect every single institution. The ordinary course of financial change has winners and losers."

Unfortunately, "losers" are proliferating as the U.S. banking system struggles to regain its fiscal footing. But at least the concept that reckless business decisions have bottom-line consequences has finally won a round in Washington.