When Treasury Secretary Paulson suddenly changed course, stating publicly on November 12 that he would abandon efforts to buy troubled mortgage assets, credit costs went up significantly, causing stocks to fall to new lows today.
Only 2 months ago, on September 12, Paulson was "adamant” that no government money be used to bailout ailing Lehman Brothers. The Treasury must surely have come to rue his words and actions, according to Nobel laureate Paul Krugman. Lehman's demise clogged up the credit markets' vital arteries, and put the "deleveraging process" on steroids, fanning the flames of an economic meltdown. The costs of the meltdown and damage to the international financial system far outweigh how much a Lehman bailout would have cost.
Paulson will now need to move quickly to contain the damage he's done - if that is still possible - and secure additional funds in an emergency session from Congress to restore some semblance of confidence in the Treasury and the markets. Paulson will likely be remembered as America's most expensive Treasury secretary.
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