What would be the dollar cost of not bailing out Wall Street? Try a number north of $30 trillion. (The awful math is detailed below.) That’s why Hank Paulson and Ben Bernanke were so scared last week. And, yes, I think “scared” isn’t too strong a word. You don’t think they convened an emergency nighttime meeting of congressional leaders and then walked out with something close to a blank check for a trillion bucks because they thought we were headed for an outright recession, even a fairly nasty one?
Nope, I think they believed, and got Congress to believe, that the economy was on the verge of something far worse than the worst downturn in a generation. And that is why they went with the so-called nuclear option: the biggest financial bailout in history. In the words of JPMorgan Chase economist James Glassman**, **“Thankfully, we and our friends around the world who are watching the economic lights come on will never know where events would have led, if the clock had not stopped [last] Thursday afternoon… Last week’s events made the 1987 stock market crash look like child’s play.”
As plumbers say about pricey repairs, “Sure, it costs money. It costs money because it saves you money.” And plumber in chief Paulson had a pretty big pipe, loaded with toxic debt, to unclog.
How close were we? It looks like we were very, very close, and not out of the woods yet.