Decision Points

suffered an incapacitating stroke in 1995.

r. 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 offinancial stocks. “These are dramatic steps,” Hank said, “but America’s financial system is at stake.”
    He outlined an even bolder proposal. “We need broad authority to buy mortgage-backed securities,” he said. Those complex financial assets had lost value when the housing bubble burst, imperiling the balance sheets of financial firms around the world. Hank recommended that we ask Congress for hundreds of billions to buy up these toxic assets and restore confidence in the banking system.
    “Is this the worst crisis since the Great Depression?” I asked.
    “Yes,” Ben replied. “In terms of the financial system, we have not seen anything like this since the 1930s, and it could get worse.”
    His answer clarified the decision I faced: Did I want to be the president overseeing an economic calamity that could be worse than the Great Depression?
    I was furious the situation had reached this point. A relatively small group of people—many on Wall Street, some not—had gambled that the housing market would keep booming forever. It didn’t. In a normal environment, the free market would render its judgment and they could fail. I would have been happy to let them do so.
    But this was not a normal environment. The market had ceased to function. And as Ben had explained, the consequences of inaction would be catastrophic. As unfair as it was to use the American people’s money to prevent a collapse for which they weren’t responsible, it would be even more unfair to do nothing and leave them to suffer the consequences.
    “Get to work,” I said, approving Hank’s plan in full. “We are going to solve this.”
    I adjourned the meeting and walked across the hallway to the Oval Office. Josh Bolten , Counselor Ed Gillespie , and Dana Perino , my talented and effective press secretary, followed me in. Ben’s historical comparison was still echoing in my mind.
    “If we’re really looking at another Great Depression,” I said, “you can be damn sure I’m going to be Roosevelt, not Hoover.”

    Almost exactly twenty-five years earlier, in October 1983, I was drinking coffee in Midland with a Harvard Business School friend, Tom Kaneb . We heard someone mention that a line was forming outside the doors of Midland’s First National Bank. First National was Texas’s largest independent bank. It had been a fixture in Midland for ninety-three years.
    Recently, rumors had been flying about the bank’s precarious financial position. First National had issued many of its loans when oil prices were rising. Then in the early 1980s, the price of crude dropped from almost forty dollars per barrel to under thirty dollars. The pace of drilling slowed. Loans defaulted. Depositors withdrew their cash. I transferred our exploration company’s