It was a brave decision. By abandoning Lehman Brothers, a 158-year-old piece of Wall Street furniture, and refusing to remove their hands from their pockets when Merrill Lynch came calling, US Treasury Secretary Hank Paulson and New York Fed Governor Tim Geithner had one of the busiest weekends of dispassion on record. There will be much fall-out in financial markets over the next few weeks and even more uncertainty.

Two questions come immediately to mind. Why give guarantees to JPMorgan to help it to buy Bear Stearns in March 2008 but decline to do so six months later for Lehman Brothers, a larger institution? Second, will Lehman’s bankruptcy make financial conditions better or worse? There is rhyme to the reasoning behind saying no to Lehman Brothers and while things will get worse over the short-term, the alternative may have been the same pain, drawn out for longer.