Apocalypse Then

July 16, 2009

How bad was the financial crisis in the bleak depths of September?

At today’s House Oversight subcommittee hearing on the Bank of America/Merrill Lynch merger, Representative Paul Kanjorski, the Pennsylvania Democrat, tried to coax Hank Paulson, the former Treasury secretary, to describe the potential doom and gloom policy makers were contemplating as the TARP proposal was being drafted.

Paulson was reluctant to be drawn out on what he and others had feared, but said that “when a financial system breaks down… the number of unemployment we were looking at was much greater than the number we are looking at now.”

Kanjorski said he had been in New York recently, where some in the financial industry told him that at the time they were afraid the country would have “gone back to the 16th century.” (One assumes that didn’t mean a return to the colonial economy of fur trapping and tobacco farming. )

Paulson said that for Ben Bernanke and himself, the fear was a slide into a new Great Depression. “I knew it was going to be very bad,” Paulson said.


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Thanks to CIT, we’re getting a bit more data on the boundaries are between Paulson’s “Financial Armageddon” at the one end and “Too Big to Fail,” another “Merrill Lynch,” another “Lehman” and a another “GM” at the other

It’s clearly not just a simple matter of annual revenues, annual profits, GDP contribution, Job Losses or any of the other standard metrics of economic policy. Perhaps it’s really as simple as how much ($$) foreign and domestic bondholders — trusting in the soundness of the U.S. economy — would loose?

Any better ideas out there? Anyone? If not, I’d suggest we first try to identify the “too big to fail” dollar threshold and designate it as a new unit of currency — The Goldman. In that case, what’s your bet? One Goldman = $_____ ?

Hmnnn, Fannie and Freddie are clearly each worth several Goldmans. Would GE be bigger or smaller than one Goldman?

Posted by Major | Report as abusive

I think that amount of money that CIT needs (a reported 5 Billion Dollars) is suitable for a Senior Preferred Stock Investment by the Treasury.
It sounds like this is not going to happen – and you have to think that the whole gang of crooks and shysters that we call banks are lining up to get cheap CIT assets and to make expensive new loans to CIT customers.
Gee, the moral of this story is : Make sure that Goldman Sachs is your couterparty if you want a financial rescue…

Posted by quimby | Report as abusive

Quimby, I do recall a rumor (unverified) of Goldman having provided CIT a $3 billion loan or line of credit. If so, we’ll get another data point on who’s actually behind tossing taxpayer wallets at all those bankers unwilling to live with the consequences of their own bad choices.

CIT, by the way, did advertises its expertise in “Structured Finance.”

Posted by Major | Report as abusive