“Mr. President, we are witnessing a financial panic.”
Those were troubling words coming from Ben Bernanke, the mild-mannered chairman of the Federal Reserve, who was seated across from me in the Roosevelt Room. Over the previous two weeks, the government had seized Fannie Mae and Freddie Mac, two giant housing entities. Lehman Brothers had filed the largest bankruptcy in American history. Merrill Lynch had been sold under duress. The Fed had granted an $85 billion loan to save AIG. Now Wachovia and Washington Mutual were teetering on the brink of collapse.
With so much turbulence in financial institutions, credit markets had seized up. Consumers couldn’t get loans for homes or cars. Small businesses couldn’t borrow to finance their operations. The stock market had taken its steepest plunge since the first day of trading after 9/11.
As we sat beneath the oil painting of Teddy Roosevelt charging on horseback, we all knew America was facing its most dire economic challenge in decades.
I turned to the Rough Rider of my financial team, Secretary of the Treasury Hank Paulson, a natural leader with decades of experience in international finance.
“The situation is extraordinarily serious,” Hank said. He and the team briefed me on three measures to stem the crisis. First, the Treasury would guarantee all $3.5 trillion in money market mutual funds, which were facing depositor runs. Second, the Fed would launch a program to unfreeze the market for commercial paper, a key source of financing for businesses across the country. Third, the Securities and Exchange Commission would issue a rule temporarily preventing the short-selling of financial stocks. “These are dramatic steps,” Hank said, “but America’s financial system is at stake.”
Editors' note: this is an excerpt from George W. Bush's Decision Points, out now by Crown Books.
© George W. Bush
Reprinted with permission.