– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

Sometimes a failed lender is just a failed lender.

The relatively small size of CIT Group is a big reason the middle-market lender is headed to the wood chopper as soon as Friday. But the lender’s decision to move aggressively into the world of risky lending and not regroup when troubles in the credit markets first emerged is a classic case of bad decision-making and bad timing striking the mortal blow.

Indeed, one should resist the temptation to draw broader conclusions from a CIT bankruptcy in a world where the government is saving some banks and leaving others to languish.

CIT is no stranger to skirting the edge of trouble. In 2002, it had a near-death experience when problems at its scandal-plagued parent Tyco International cost it access to essential short-term financing. Tapping a credit line averted disaster then.

That lesson seemed to have been lost on Jeffrey Peek, a former Wall Street investment banker. He joined the company just a year later, becoming CEO in 2004. Peek then led the once-under-the-radar lender into the world of subprime loans, student lending and leveraged buyouts at a time when such ventures were hailed as the Promised Land for companies and executives with big ambitions.

But like others on Wall Street, he funded his aspirations through credit markets and by 2007 they had grown tired of such risky ventures and promptly shut off the financing spigot. The drought threw Countrywide Financial, the lender that fed the nation’s housing addiction with questionable loans, into the arms of Bank of America — a clear warning sign to those that relied on debt markets to start shoring up their capital with other sources of funding.

“Management should have addressed their funding problems two years ago,” said Sean Egan, president of Egan-Jones Ratings Co.

For CIT, the death blow came in March 2008 — six months before the financial firm bloodbath that spooked Congress into handing over more than $700 billion to save the financial system. Credit ratings downgrades left the company little choice but to draw on a credit facility — a sure signal of weakness from which it never recovered.

In December, the government still chose to give it a $2.33 billion infusion of TARP funds after the company converted itself into a bank holding company.

In hindsight, it’s a wonder that the government gave the lender funds in the first place, but then again it was handing out lots of funds at a time when it thought broad brush-strokes were needed to stabilize the financial system.

Times have changed and it looks like CIT’s time is up. Financial markets are stable, and earnings from JPMorgan Chase and Goldman Sachs Group this week show that the big banks are now far from failing.

The government’s refusal to give it a second shot in the arm this week isn’t surprising given the rapid deterioration of its collateral.

That CIT is expected to leave only small ripples rather than a Lehman Brothers tsunami makes a bankruptcy less ominous and easier for the government to draw the line.

But for those angry about CIT’s demise, keep your wrath focused on the company and its excessive risk-taking. It helped create a credit crunch that’s about to get worse for the little guy.

If it's not a risk to the financial system, let it fail.

That's the message from the government's reluctance to swoop in and bail out one of the nation's biggest commercial lenders, CIT Group Inc, as it struggles to stay afloat. But even though CIT doesn't have the firepower to take down the global financial system, its failure would certainly be felt by some of the struggling small businesses that rely on its financing.

CIT is negotiating with its regulators to find a solution to its near-term liquidity problems, but speculation that it will file for bankruptcy has intensified after the Wall Street Journal reported that it was preparing for a possible filing.

Not that you can blame the Federal Deposit Insurance Corp and the tough-minded Sheila Bair for thinking twice about supporting a junk-rated lender that has already sucked in more than $2 billion of government funds.

A failure, however, could still hurt Main Street since it's sure to make already tight credit conditions even more restrictive for businesses already on the ropes. This is important for regulators as well as investors to keep in mind.

For the last two years, dangers in the esoteric corners of the opaque credit markets were the ones that needed minding. Problems with complicated and difficult-to-understand structured credit products helped fell financial giants like

Lehman Brothers and AIG who were supposed to know best how to manage risk.
Regulators have responded in kind with a blueprint for overhauling the system and a commitment to supporting firms that are too big to fail.

But the dangers are shifting. Though credit is flowing to large companies seeking to drum up funds through the debt markets, smaller ones are still finding it difficult to access funds. The National Federation of Independent Business reported that 16 percent of small-business owners reported loans were harder to get in May -- the highest reading since the recession of 1980-82.

A potential CIT failure could make matters worse. Though it may not be a household name, it is a major middle-market lender. Among its many business lines, the company is an important source of financing for thousands of small- and medium-sized businesses that don't have the heft to raise funds in the capital markets.

The lender's best business bits would certainly be picked up by larger banks, but that would most likely only take care of the most credit-worthy clients. There's sure to be some that would fall through the cracks into a world where access to credit is still challenging.

Even credit cards are harder to come by. Advanta, which specialized in small business credit cards, shut down its credit card accounts for future use after it ran into trouble.

This isn't to say the government needs to come to the rescue every time a financial institution gets in trouble. It doesn't. But CIT's potential failure should be a warning sign that while systemic risk has been cured, the credit crisis has not.

That means more pain is yet to come and the much-desired economic recovery could prove elusive for some time.

Update: See what my colleague Matthew Goldstein has to say on CIT here. And Rolf Winkler argues here why CIT shouldn't be bailed out.