With an 800-point fall in the Dow Jones Industrial Average the day before Paulson demanded decisive action, he closed the deal and Tarp entered the statute book. With treasury yields nailed to the floor by a combination of accommodative monetary policy and eurozone sovereign risk aversion, and equity markets so far ignoring the debt talks, Geithner and the Obama administration have no such sales pitch available.
But what if? Clearly, the potential risks to the global financial system arising from an unprecedented default by the ultimate too-big-too-fail institution could make the Lehman bankruptcy look like a dress rehearsal for financial Armageddon, according to worst-case scenario analysis from JPMorgan.
A late or missed interest payment on August 15 would almost certainly have broad systemic effects with long-term financial and economic consequences.
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