A disaster, but a necessary one to clean out the rot that remains in the financial system. As noted here, Lehman was bigger than Bear Stearns was at the time of Bear’s bailout and the fact that the Treasury Department has said “no” to further bailouts–even though Lehman is a larger player–is heartening, because it means that the financial crisis will be allowed to burn itself out instead of relying on artificial government prop-ups that will only serve to bring about moral hazards galore in the long run.

None of this is painless, of course. But a government bailout would have only served to prolong the pain–and at taxpayer expense, to boot.

Of course, this problem now has a political dimension to it, with Barack Obama claiming that this situation is directly the result of Republican economic policies and that it represents the worst fix since the Great Depression. Of course, one strains to figure out how it is possible that the Bush Administration can be responsible for the fact that various investment banks decided to try to get a piece of the subprime mortgage pie, but under the leadership of the “reality-based community,” we are supposed to believe that the government has the power to influence private sector investments–or that it should. Amusing. On the “Great Depression” point, perhaps Obama has forgotten the Carter years, when inflation, unemployment and interest rates were in double digits. But then, since every Republican President is accused of being a latter-day Herbert Hoover–really, don’t they have a macro for this accusation by now?–this latter non-substantive talking point should come as no surprise whatsoever.