I'm not an economist, and even if I were, I don't think I'd have any way to check the veracity of Paulson's claim, but you have to consider the source. The severity of a problem that, at that point, was affecting basically only banks and investment firms is bound to be viewed with great fear by a man who worked solely in that industry for over thirty years, and in many cases strongly promoted the policies that brought us to this brink.

These are the same situations that caused the Great Depression, and while that was extremely dire, it in no way led to a collapse of the government.