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.