Inside Dr. Bernanke’s E.R.

As Obama considers reappointing the Fed chairman, a look at how he took on more power

By DAVID WESSEL

WSJ

On Wednesday morning, Sept. 17, Ben Bernanke and his lieutenants assembled. Lehman was in bankruptcy; AIG was not, only because the Fed had intervened. The Dow Jones Industrial Average was at a nearly three-year low. Yields on the safest securities of all, short-term U.S. Treasury bills, fell nearly to zero because so many investors wanted to park their money there. “It was becoming clear that the markets were going into anaphylactic shock, and that we needed to do something,” Mr. Bernanke said in an interview a few weeks later.

The Fed could no longer cope with the Great Panic by itself. The Federal Reserve chairman had suspected for months that he and then-Treasury Secretary Henry Paulson would eventually end up asking Congress to spend substantial sums of taxpayer money to rescue the banks, as every other country had been forced to do in a major banking crisis. So far, Mr. Bernanke had deferred to Mr. Paulson on the timing of going to Congress, while Mr. Paulson had been reluctant to propose anything that Congress might, in an election year, reject. Mr. Bernanke saw this as the inevitable politics of responding to banking crises in a democracy. The most effective solution always called for lots of taxpayer money upfront. The usual political solution was to wait until the crisis was bad enough to dominate the headlines, even if that drove up the ultimate cost.

At 7:30 p.m., after a day of nearly constant conference calls, the financial firefighters convened for the last session of the day. Mr. Bernanke and his Washington team were facing the Polcycom speakerphone on the conference table in his office. Timothy Geithner, then-still the president of the Federal Reserve Bank of New York and not yet Treasury secretary, was on the phone from his office. Mr. Paulson was at his desk. More than a dozen Treasury aides stood around him to listen, or huddled in corners in separate conversations. Mr. Bernanke was usually soft-spoken and mild-mannered. He was not this time. “We can’t do this anymore, Hank. We have to go to Congress,” Mr. Bernanke said, according to a participant in the call. Mr. Paulson was uncharacteristically silent. He didn’t argue. He didn’t signal agreement. He didn’t tell Mr. Bernanke that he had come to the same conclusion and already had scrambled his staff.

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