Bernanke made a mistake by giving JP a backstop. When he saw the market reaction he knew that, so he couldn't backstop the next one to come along or he'd never be in a position to say no again. Lehman and Merrill came next... more or less together, but Lehman constituted less drawdown so he said no to their foreign buyers to get back his "street cred", and shoved Merrill and BofA together (waiving the cap reqs for the unified company ... a behind the scenes "non-backstop" - backstop). But the fall of Lehman turned what was then still a "serious problem" into a total meltdown. Once it hit AIG his credibility was meaningless in the face of the kind of total collapse that the industry was facing so he reacted to that too by providing more assurances. I don't think Goldman drove it, I think it was driven by vanity, inexperience, and ineptitude by the regulators and the fed.
Besides, in a choice of causes between a conspiracy and stupidity, you'll make a lot more money betting on stupidity.
A fair point. But can you argue the case for Henry Paulson being both astute and incorruptible?
I'm in favor of a plan that starts unwinding the credit mess, and I recognize that there will need to be government involvement in that. I'm not one of the let-it-all-burn, John Galt wannabees.
However, we need to have people who saw the problem early, and had the guts to call it, in the driver's seat (Robert Shiller, Nouriel Roubini, Ivy Zelman are three names that come to mind), instead of the Bernankes and Paulsons who were cheerleading the credit bubble up till a year ago.