Paulson and Bernanke finally moved to restore investor confidence by effectively underwriting or buying many of the bad loans that had been undermining the health of financial institutions in the US. The financial markets worldwide cheered with close to 10% jump in two days.
This behavior of the financial markets once again confirmed the importance of confidence. When confidence comes back, firms that otherwise would fail are saved. When confidence collapses, firms that otherwise were healthy could fail.
I had lamented Paulson's failure to act as a guarantor to facilitate the takeover of Lehman Brothers by potential buyers because that really rocked the financial market and triggered a "tsunami" across the world's financial markets. If this time around Paulson and Bernanke failed to act promptly, it is entirely possible that the US and the world slip into the second Great Depression.
For now the world is saved. I am sure despite the cost in terms of direct taxpayers' money, taxpayers will thank Paulson and Bernanke for what they did.
I hope, though, that they will still take necessary action against real moral hazard: i.e., whose who win big if their bets are right and have little to lose if their bets are wrong. If they are sincere about guarding moral hazard they should be after the decision makers who created the mess, and not the innocent savers both in the US and in the rest of the world.