On Friday, the Federal Reserve released the transcripts of the 2008 meetings of its Federal Open Market Committee, which sets monetary policy. The transcripts provide a detailed account of some of the Fed's key decisions during that crisis year. Here is a look at the fuller picture that the documents have provided. Related Article »

The Gathering Storm Federal Reserve officials are unaware in January 2008 that the economy has already entered a recession. But the Fed's chairman, Ben S. Bernanke, and his closest advisers are feeling nervous. They worry that the Fed's actions at the end of 2007 have been insufficient, and that tumbling stock prices represent the start of a broader pullback in investment.

emergency meeting Fed officials conclude in a 5 p.m. conference call that “substantial additional policy easing in the near term might well be necessary.”

Both Mr. Bernanke and Ms. Yellen voice pessimism in the conference call. Mr. Bernanke: “I think there are a lot of indications that we may soon be in a recession. I think a garden-variety recession is an acceptable risk, but I am also concerned that such a downturn might morph into something more serious.” View Transcript »

Bank of America announces it will buy the nation's largest mortgage lender, Countrywide Financial, for just $4 billion. Bank of America’s Chief Makes Big Bet »

emergency meeting At 6 p.m. on Martin Luther King's Birthday, Fed officials decide they can't wait any longer to cut interest rates. The next day the Fed announces the biggest interest rate reduction in more than two decades, temporarily halting the stock market's slide. The benchmark rate is cut 75 basis points, to 3.5 percent.

Early in 2008, as signs of crisis are building, Janet L. Yellen scolds the other members of the Open Market Committee, seeking to get them to recognize that they have not done enough. Ms. Yellen: “The risk of a severe recession and credit crisis is unacceptably high, and it is being clearly priced now into not only domestic but also global markets.” View Transcript »

Ms. Yellen says Mr. Bernanke’s proposal of a 75 basis-point cut in the Fed’s benchmark rate is a good step toward recognizing the central bank’s slowness. Ms Yellen: “An inter-meeting move will be a surprise, but I think it will show that we get it and we recognize we have been behind the curve.” View Transcript »

scheduled meeting The Federal Open Market Committee, or F.O.M.C., cuts its benchmark rate by another 50 basis points to 3 percent, saying “financial markets remain under considerable stress, and credit has tightened further for some businesses and households.”

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. acknowledge before Congress that the outlook for the economy has worsened, as both are accused of being overtaken by events. Mr. Bernanke testifies that problems in housing and mortgage-related markets have spread more widely and proved more intractable than he expected three months earlier. Both officials, however, continue to predict the economy will avoid recession. Top Officials See Bleaker Outlook for the Economy »

A Liquidity Crisis Companies in the mortgage business began to collapse, unable to find financing as investors lose faith in the judgment of the rating agencies that the companies' offerings are low-risk, AAA-rated investments. The Fed, determined to offset the lack of private funding, rapidly expands its lending to troubled financial firms, and agrees to help finance JPMorgan Chase's salvage of the largest casualty, Bear Stearns.

Two big housing finance companies, Thornburg Mortgage and Carlyle Capital, move to the brink of collapse. Aversion to Risk Deepens Credit Woes »

The Fed offers up to $200 billion in loans for Wall Street firms, expanding a safety net once restricted to commercial banks. Federal Reserve Board Press Release »

emergency meeting Mr. Bernanke convenes another conference call, telling the committee, “We live in a very special time.” The Fed doubles Wall Street's safety net to $400 billlion and also begins to expand its efforts to pump dollars into foreign markets through “swap” agreements with the European and Swiss central banks.

The Fed begins to engineer the rescue of Bear Stearns. Two days later, JPMorgan agrees to buy the crippled investment bank, less $30 billion in troubled assets that it leaves with the Fed. Fed Chief Shifts Path, Inventing Policy in Crisis »

The Fed effectively removes any limits on the amounts it is willing to lend Wall Street with the announcement of yet another emergency program, the Primary Dealer Credit Facility. “The Federal Reserve, in close consultation with the Treasury, is working to promote liquid, well-functioning financial markets, which are essential for economic growth,” Mr. Bernanke says. Federal Reserve Board Press Release »

scheduled meeting The F.O.M.C. reduces short-term interest rates for the sixth time in six months. It lowers its federal funds rate by 75 basis points, to 2.25 percent, and makes clear that it's not done yet.

At the March 18 meeting, two days after the Fed rescued Bear Stearns, Timothy F. Geithner, president of the Federal Reserve Bank of New York, says he wants the Fed to act as traditional lender of last resort, but he doesn’t want to bail out all of Wall Street. Mr. Geithner: "The hardest thing in this balance now is to try to do something that doesn’t increase the incentives so that we become the counterparty to everybody.”



“We’re trying to make sure that it’s a backstop, but not a backstop that’s so attractive that they come, and that’s going to be a very hard line to walk.” View Transcript »

William Dudley, the official overseeing markets at the Federal Reserve Bank of New York, gives his view of the demise of Bear Stearns at the same meeting. Mr. Dudley: “In my view, an old-fashioned bank run is what really led to Bear Stearns’s demise.” View Transcript »

There is humor, of sorts, at the meeting: Mr. Plosser: “Like everyone else, I am very concerned about the developments in the financial markets. I’ve been supportive of the steps we’ve taken to enhance liquidity in the markets through the TAF, the TSLF, the PDCF or whatever.” Mr. Bernanke: “AEIOU.” Tim Geithner: “Don’t say IOU.” [Laughter]

And Richard Fisher of the Dallas Fed cites his drinking habits in comments about inflation: Mr. Fisher: “Most distressing to me was Anheuser-Busch, since I am a beer lover. The cost of input of hops and barley has gone up three and a half percent.”

scheduled meeting The F.O.M.C. cuts rates by another 25 basis points to 2 percent, but this time it indicates that it's done for now. Officials think they've done enough to arrest the crisis and stave off recession. They predict modest growth during 2008 and faster growth in 2009.

In early 2008, Ms. Yellen is known as one of the most pessimistic members of the Fed’s policy making committee, but even she is way off in her estimates of the magnitude of what is coming. At the Fed’s two-day meeting in late April, she shows her concen. Ms. Yellen: "The Fed’s internal projections represent “one of the most pessimistic economic forecasts; yet I find its recessionary projection quite plausible and see downside risks that could take the economy well below that forecast.” View Transcript »

At the same time, though, Ms. Yellen was not envisioning a long recession. She said that while the first half of 2008 would likely see no economic growth, in the second half she was expecting growth of 1.5 percent. That view that ended up being far too rosy, as was her assessment, at the time, that “the likelihood of a severe financial panic has diminished." Part of the reason for her note of optimism, was her faith in the power of government stimulus. Ms. Yellen: “Of course, there is considerable uncertainty about assessing the potential size of these effects. But over the next few months as the checks go out and the retail sales reports come in, we should get a pretty quick preliminary read on how things are shaping up.” View Transcript »

A Summer Lull For a time it seems the worst of the crisis is over. The Fed stops cutting interest rates and starts worrying about inflation. But the housing finance system continues to break down, forcing the government to create a rescue plan for Fannie Mae and Freddie Mac, and demand for the Fed's emergency loans continues to rise as the ripples spread inexorably.

scheduled meeting The F.O.M.C. lets interest rates stand.

The Office of Thrift Supervision closes IndyMac Bank, the first large bank failure of the financial crisis. Regulators Seize Mortgage Lender »

The Fed extends its safety net to include Fannie Mae and Freddie Mac, authorizing the housing finance companies to borrow money if necessary. The same day, the Treasury Department announces a temporary increase in its support for the companies. Officials emphasize that no rescue will be necessary. Treasury Acts to Save Mortgage Giants »

emergency meeting With the strain on financial markets mounting once again, Mr. Bernanke convenes the Fed's first emergency meeting since March. The Fed moves to expand both its domestic and international lending programs.

While the summer months seem like a lull in retrospect, strains in the financial system are building and Mr. Bernanke is pushing for new action by the Fed to relieve the pressure. There are qualms among policy makers about how far to go cushion big banks and other financial institutions, but Mr. Bernanke argues that the Fed's actions are absolutely necessary. Mr. Bernanke: "I think that, in the absence of our facilities, the risks of systemic problems would be much higher. I think it is useful for us to give a time frame, to provide some sense of assurance to market participants that, if conditions remain stressed, there will be these backups." View Transcript »

Meanwhile, Fed policy makers are growing frustrated with other regulators. Ms. Yellen says that while her bank was offering loans to the troubled IndyMac, the Office of Thrift Supervision, IndyMac’s primary regulator, was downgrading IndyMac without informing the Fed. And the case of IndyMac, seized by regulators earlier in July as it collapsed, is a warning of how fragile the banking system is becoming. Ms. Yellen: "So let me draw a few morals from this shaggy dog tale. First, troubled banks can be downgraded and fail very rapidly. ... We deal with hundreds and potentially thousands of banks at the discount window and can’t monitor and make independent judgments on the health of all those institutions on an ongoing basis. We do have to rely on primary supervisors for assessments. If we act on our own hunches, we are substituting our judgment for that of primary supervisors." Mr. Lacker: “I think it is outrageous that the O.T.S. downgraded them and didn’t inform the San Francisco Fed. I hope, Mr. Chairman, that the unacceptability of that sort of behavior is communicated at the highest levels to the O.T.S.” View Transcript »

President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Treasury to purchase government-sponsored enterprise obligations and puts the regulatory supervision of the G.S.E.s (Fannie Mae and Freddie Mac) under a new Federal Housing Finance Agency. Bush Signs Sweeping Housing Bill »

scheduled meeting The F.O.M.C. holds interest rates steady. It frets that inflationary pressures are building. Three of the regional reserve banks want to raise interest rates.

Past the Tipping Point How did the financial system break down? Slowly, and then all at once. The Fed, in conjunction with Treasury Department officials, does not prevent the failure of Lehman Brothers, then decides at the last moment to bail out the giant insurer American International Group. While making these ad hoc decisions, it continues to rapidly expand its role as the new source of funding for domestic and international lenders. Mr. Bernanke will say later that during these months, the economy was on the brink of a second Great Depression.

Lehman Brothers files for Chapter 11 bankruptcy protection; Bank of America buys Merrill Lynch. Lehman Files for Bankruptcy; Merrill Is Sold »

scheduled meeting The F.O.M.C. continues to hold steady on rates. Most Fed officials say they still believe the economy is growing, still predict it will grow in the final months of 2008 and grow more quickly in 2009. And they still fret that inflation is rising.

Within hours of Lehman’s collapse, the debate begins over whether the decision to let it fail has been the right one. It’s a debate that rages to this day, on Wall Street, in Washington and in academia. Eric Rosengren, president of the Boston Fed, raises it one day after Lehman's bankruptcy filing. Mr. Rosengren: “I think it’s too soon to know whether what we did with Lehman is right. But we took a calculated bet.” View Transcript »

Thomas Hoenig, head of the Kansas City Fed, defends the Fed's action. Mr. Hoenig: “I think what we did with Lehman was the right thing because we did have a market beginning to play the Treasury and us.” View Transcript »

Jeffrey Lacker, the Richmond Fed chief, says the move has enhanced the Fed's credibility. Mr. Lacker: "I don’t want to be sanguine about it, but the silver lining to all the disruption that’s ahead of us is that it will enhance the credibility of any commitment that we make in the future to be willing to let an institution fail and to risk such disruption again." View Transcript »

On Sept. 16, even as Fed policy makers try to gauge the depth of the crisis, some quickly conclude that it is an economic threat of historic proportions. In a prescient comment, the head of the Boston Fed, Eric Rosengren, says the crisis isn’t just about Wall Street any more. Mr. Rosengren: "This is already a historic week, and the week has just begun. The labor market is weak and getting weaker. The unemployment rate has risen 1.1 percentage points since April and is likely to rise further. I am not convinced that the unemployment rate will level off where the Greenbook is assuming currently. The failure of a major investment bank, the forced merger of another, the largest thrift and insurer teetering, and the failure of Freddie and Fannie are likely to have a significant impact on the real economy." View Transcript »

Worries are mounting that the crisis is spreading overseas quickly. Strains are already evident in Northern Europe, as Norway moves to protect its banking system, and Iceland’s highly levered banking system approaches collapse. The Bank of England, Switzerland’s central bank, the European Central Bank and the Bank of Japan all need help. Just a minute or so into the meeting, Mr. Bernanke issues a warning. Mr. Bernanke: "There are very significant problems with dollar funding in other jurisdictions — in Europe and elsewhere." View Transcript »

The answer is to create so-called swap lines, enabling foreign banks to quickly obtain dollar funding from the Fed. But Mr. Bernanke wants to know how much. The answer, according to Mr. Dudley, is a lot. Mr. Dudley: “The numbers have to be very, very large, or it should be open-ended. I would suggest that open-ended is better because then you really do provide a backstop for the entire market.” View Transcript »

But not every Fed policy maker is so eager to rush to aid overseas central banks, especially in Europe. Jeffrey M. Lacker, president of the Richmond Fed, wonders whether foreign institutions couldn’t use their own dollar reserves, rather than immediately benefit from the Fed’s largess. Mr. Lacker: “Broadly, I’m uncomfortable with our playing that role." View Transcript »

Ms. Yellen has developed a reputation for forecasting the recession in 2008, when she gave a cheeky indication of the sort of evidence she was looking at in her posting at the Fed’s San Francisco regional bank. She said she was noticing “widespread” cutbacks in spending on discretionary items popular in California. She expands on these remarks at the Sept. 16 meeting. Ms. Yellen: "East Bay plastic surgeons and dentists note that patients are deferring elective procedures.” (Laughter) "Reservations are no longer necessary at many high-end restaurants. And the Silicon Valley Country Club, with a $250,000 entrance fee and seven- to eight-year waiting list, has seen the number of would-be new members shrink to a mere 13.” (Laughter) View Transcript »

Immediately after the policy meeting, a smaller group of Fed offiicals convenes and determines to rescue the American International Group, an insurance company that has become a central player in the housing finance system. The initial investment is $85 billion. Fed’s $85 Billion Loan Rescues Insurer »

The Fed announces a big expansion of its swap lines with the European Central Bank as well as the central banks of Switzerland, Japan, Canada and England, at 3 a.m., timed to beat the opening of European markets. Later in the day, Mr. Bernanke goes to Capitol Hill to back the administration's plan to bail out the domestic financial industry. He warns that the economy is on the verge of collapsing into a second Great Depression. Vast Bailout by U.S. Proposed in Bid to Stem Financial Crisis »

The Federal Reserve Board authorizes the two surviving major investment banks, Goldman Sachs and Morgan Stanley, to become bank holding companies, ending an era in American finance. Shift for Goldman and Morgan Marks the End of an Era »

The Fed establishes new swap lines with the Reserve Bank of Australia as well as with the central banks of Norway, Sweden and Denmark. Federal Reserve Board Press Release »

The Office of Thrift Supervision closes Washington Mutual Bank. JPMorgan Chase acquires the banking operations of Washington Mutual. Government Seizes WaMu and Sells Some Assets »

emergency meeting The Fed approves a further expansion of its swaps with foreign central banks, and extends the program through April 2009. Later that day, Congress rejects the Troubled Asset Relief Program, or TARP, sending markets into a tailspin.

Two weeks after the collapse of Lehman Brothers, the international shockwaves are still building. Although swap lines to help central banks overseas cope with the crisis were discussed at the Sept. 16 meeting and are in place, participants in a conference call on Sept. 29 realize much more money is needed to calm the market. Some officials, like Charles L. Evans, president of the Chicago Fed, wonder about the risks. Mr. Evans: "Thank you, Mr. Chairman. I’d just like to review by asking a question. The swap lines are very large now. Could we review what could go wrong for our balance sheet in a not-so-pleasant scenario?" View Transcript »

Others made it clear that whatever the risks, they have no choice but to act. Bill Dudley, a top official at the New York Fed, lays out the case that “more force needs to be applied.” The swap lines are now authorized to make $620 billion available, up from $290 billion. Mr. Dudley: “Obviously, things are breaking, even with all the tools that we’ve rolled out. So I think that just suggests that more force needs to be applied. Clearly, confidence in the markets is extraordinarily poor and fragile, and that’s another reason that an escalation in the authorizations is important — to reassure people that the central banks are prepared to be there, if necessary.” View Transcript »

Upon reflection, Congress passes and President Bush signs into law the Emergency Economic Stabilization Act of 2008, which establishes the $700 billion Troubled Asset Relief Program. Wells Fargo announces that it will buy Wachovia, the largest bank to disappear during the crisis. Bailout Plan Wins Approval; Democrats Vow Tighter Rules »

Once again widening its safety net, the Fed announces it will ensure that nonfinancial companies can continue to find financing by creating the Commercial Paper Funding Facility. Fed Announces Plan to Buy Short-Term Debt »

emergency meeting On another evening conference call, the F.O.M.C. cuts rates by 50 basis points to 1.5 percent in an action coordinated with other central banks, citing the deterioration of financial markets. The moves are announced the next morning at 7 a.m.

Despite the best efforts of the Fed since the collapse of Lehman in mid-September, financial markets remain in free fall in October, and bank stocks are especially weak. Credit is tightening for even the biggest banks, and lenders are getting nervous about providing funds for one another. In other words, the glue of the financial system is coming undone, but Fed officials struggle to figure out why. Mr. Dudley: "The markets didn’t take as much solace as I would have hoped, given the degree of escalation of those provisions." Mr. Lacker: "So what would it have looked like for them to have taken much solace? I mean, what prices and quantities would change?" View Transcript »

After acknowledging the “disappointing” response of investors, Mr. Dudley is asked by Mr. Lacker if there is a more fundamental problem. There is: Banks need more capital, a lot more -- and within days, Washington will move to bail out the biggest banks, a key moment in the crisis. Mr. Lacker: "Could it be that some fundamentals are going on there that market participants don’t view it as addressing?" Mr. Dudley: "Well, a fair point is that the Federal Reserve cannot by its actions solve the balance-sheet constraints of the U.S. banking system. The Federal Reserve by its actions cannot create capital for banks, and that’s obviously one of the problems at the core of what is going on in the financial system." View Transcript »

The Fed removes the size limits on its swap lines with the European Central Bank, as well as with the central banks of Switzerland, Japan and the Britain. Federal Reserve Board Press Release »

The government summons the chief executives of nine large banks to Washington, where they are told that they will be bailed out. With the talk of a bank rescue package in the United States, and central banks around the world finally moving more aggressively and in concert, Wall Street begins to rally. The Dow Jones industrial averages jumps 936 points, or 11 percent, the largest one-day gain since the 1930s. Overseas markets also surged. U.S. Investing $250 Billion in Banks »

By late October, the worldwide depth and impact of the crisis has become apparent to all, and the decision to let Lehman fail is drawing intense criticism in Europe in particular.

scheduled meeting The F.O.M.C. cuts rates by another 50 basis points to 1 percent. “The pace of economic activity appears to have slowed markedly," it says. The committee also authorizes a new round of swap lines with New Zealand, Brazil, South Korea, Mexico and Singapore.

Mr. Bernanke, the Fed chairman, argues at the F.O.M.C. meeting that American policy makers have essentially done the best they could under the circumstances. Mr. Bernanke: “So given the fog of war — which has, of course, been intense going back for more than a year — I would defend what we’ve done in terms of the general direction, acknowledging that execution is not always perfect and that communication is not always perfect.” View Transcript »

Within the privacy of the F.O.M.C. meeting, Mr. Geithner places some blame on Congress for making matters worse. He is presumably referring to the House’s vote against the Troubled Asset Relief Program at the end of September. Congress approved the program a few days later. But Mr. Geithner says the initial vote hurt. Mr. Geithner: “Look particularly at the damage to confidence created by the Congress’s actions in the weeks after the legislation was first proposed.” View Transcript »

At the same meeting, Mr. Geithner presses other committee members to watch their words when talking about the Fed’s actions. Mr. Geithner: “But please be very careful, certainly outside this room, about adding to the perception that the actions by this body were a substantial contributor to the erosion in confidence. I think that Don Kohn said it best. The whole framing, which seems to have hardened now, that the world ended with the Lehman bankruptcy is just deeply unfair to the basic truth.” View Transcript »

Ms. Yellen also offers her views on the government bailouts. While she says she strongly supports the efforts to prop up the banking system, she adds that it is not nearly enough. In tune with many critics of the government bailouts, Ms.Yellen says ordinary Americans also need help. Ms. Yellen: “We are fighting an uphill battle against falling home prices, an economy in recession and collapsing confidence. It is not clear whether these steps will reopen credit flows to households and businesses, especially those with less than sterling credit.” View Transcript »

At a time when many at the Fed are wary of stimulus packages, Ms. Yellen’s concerns lead her to argue for more: Ms. Yellen: “Given the seriousness of the situation, I believe that we should put as much stimulus into the system as we can as soon as we can.” View Transcript »

Start of a New Era With the financial system on life support — although not yet stabilized — the Fed begins to turn its attention to the longer-term project of reviving the economy. It inaugurates the two strategies that remain at the core of that effort more than five years later, reducing short-term interest rates nearly to zero and starting to pile up mortgage bonds and Treasuries.

Executives of Ford, General Motors, and Chrysler testify before Congress, requesting access to TARP for federal loans. Detroit Chiefs Plead for Aid »

The Treasury Department, Federal Reserve Board and F.D.I.C. announce an agreement with Citigroup to provide a package of guarantees, liquidity access and capital. Citigroup to Halt Dividend and Curb Pay »

The Fed announces it will buy up to $100 billion in debt issued by Fannie Mae and Freddie Mac, and up to $500 billion in securities issued by the two companies, as it seeks to halt the collapse of the housing finance system. Federal Reserve Board Press Release »

The Fed's loans to foreign central banks peak at $580 billion.

The Business Cycle Dating Committee of the National Bureau of Economic Research announces that the economy has been in a recession since December 2007. National Bureau of Economic Research »

scheduled meeting The F.O.M.C. announces that it will reduce its benchmark interest rate to zero for the first time since the Great Depression. The move exhausts the Fed's primary means of stimulating the economy, and it immediately begins to experiment with a new approach, declaring its intent to keep rates near zero "for some time."

With the real economy buckling and signs of free-fall in evidence, policy-makers, at the final meeting of the year, begin to contemplate cutting short-term interest rates to what they term the “zero bound.” Mr. Bernanke acknowledges the usual policies that worked in the past aren’t working – in fact, this time is so different that a new approach is needed. Mr. Bernanke: “As you know, we are at a historic juncture — both for the U.S. economy and for the Federal Reserve. The financial and economic crisis is severe despite extraordinary efforts not only by the Federal Reserve but also by other policy makers here and around the world. With respect to monetary policy, we are at this point moving away from the standard interest rate targeting approach and, of necessity, moving toward new approaches.” View Transcript »

While the macroeconomic outlook remains “gloomy,” there is still room for humor as policy makers discuss the impact of the crisis on high-yield bonds, and whether experts can look to the Great Depression as a guide. Cue a reference to Michael Milken, widely cited for popularizing so-called junk bonds on Wall Street in the 1980s, but ultimately jailed for securities violations. Mr. Bullard: "Do we know? Was there something like a junk market in the Great Depression that we can compare this with?" Mr. Dudley: "Well, there were certain leveraged utility companies that you could argue were pretty junky." Mr. Fisher: "Corporate grade became junk in the Great Depression." Mr. Bernanke: "Michael Milken hadn’t been born yet." [Laughter] View Transcript »

Mr. Bernanke also acknowledges that buying up assets – the so-called policy of quantitative easing – raises issues of how the Fed is managed and will probably be controversial. It would remain so in 2014. Mr. Bernanke: "I think we all agree that getting the right policies for the U.S. economy is the top priority and, whatever we do, we need to find a way to get the right policies in place. Frankly, I think the best way to achieve that — I am going to talk about some details — is through operating in good faith. If we work together and keep each other apprised of developments and our views, we will be able to make this work. If we take too narrow an approach, too legalistic an approach, I think it will be much more difficult." View Transcript »