The U.S. government has struck out in its attempt to quell the chaos that has become the U.S. stock market.

It’s time to let the market decide what to do.

First, there was the orchestrated purchase of Bear Stearns. Then the free fall of Lehman Bros. Ensuing panic pushed Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson to, out of thin air, offer $700 billion taxpayer bailout of bad decision-making on Wall Street. It then went deeper, with the Fed saying it would bail out the commercial paper market and, the crowning blow, for the government to actually buy a part of some U.S. financial institutions. All the while, the Feds were crying wolf on how this was going to decimate Main Street.

Main Street bankers we talk to are doing just fine. As MinnStar Bank CEO Steve Olson says on these pages and publicly elsewhere, they’re taking deposits, making loans and not asking for a federal bailout. Other community banks are actually aggressively seeking loans.

To be sure, the retirement plans of everyone in America have been hammered like never before. Same goes for our savings whether they be in stock mutual funds or money markets. Still, there is something about the “government’s help” that is just suspect. If the government hadn’t intervened at all, there’s a chance we’d be out of this downward spiral. That’s because every government action brings with it anticipation something good will happen, and when it doesn’t, there’s more sell off.

It would be better just to let the market decide what’s good and bad.

The government would be wise to let the market shake out. There’s a tendency toward that when you let the people with the most at stake, stockholders, big institutional investors and others, decide their own fate.

The government can make a difference by making all of these complicated stock transactions more transparent. Several have suggested a kind of “label” for stocks and investments much like every food product in the U.S. is labeled. In that case you can see right on the label what’s good and what’s bad about a particular food product. Why not require the same thing with stocks, mutual funds and other investment instruments? It would be less costly than the current bailout.

There are models for more transparency. Agriculture commodity markets are regulated and large trader positions are required to be disclosed. Applying that to stocks, average investors could find out if several large mutual funds suddenly took an interest in short selling some stocks in the average investor’s portfolio.

At this time of uncertainty, information is what we need. Panic and reactionary government intrusion is something that can be more dangerous than it sounds.