This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Inside the Fed's First Financial-Crisis Meeting; Cramer Was Right

Stock quotes in this article: JPM, BAC

In retrospect, we know that the crisis eventually spread to virtually every major financial institution in the country. But that was August 2007 -- seven months before the Fed provided a $30 billion loan to JPMorgan (JPM) for its purchase of the ailing Bear Stearns.

The FOMC continued to discuss the federal funds rate, when Dallas Fed President Richard Fisher and Geithner jumped into a minor scuffle.

Fisher questioned whether an official statement from the FOMC would be the best action to calm markets, and he asked what it would do to help them rein in "reckless and irresponsible" behavior by creditors.

Geithner said he felt a statement would be the most "powerful" action as he believed it didn't make sense to attempt to persuade banks to lend to unstable institutions.

Fisher relented, agreeing with Geithner that a statement was the "correct thing," but he added that he felt the Fed should receive something in return for providing liquidity.

"I don't agree with that. I don't think that's the way to think about it. This is a general signal that we're prepared to relax or to provide liquidity to help make sure markets come back in some more orderly functioning," Geithner said. "You can't condition that statement without undermining its basic power in some sense."

Fisher again caved and said he didn't want to amend the statement, just that he wanted his mindset to be known.

It was at this moment when Bernanke unloaded.

"My understanding of the market's problem is that price discovery has been inhibited by the illiquidity of the subprime-related assets that are not trading, and nobody knows what they're worth, and so there's a general freeze-up," Bernanke said. "The market is not operating in a normal way. The idea of providing liquidity is essentially to give the market some ability to do the appropriate repricing it needs to do and to begin to operate more normally. So it's a question of market functioning, not a question of bailing anybody out."

The conversation continued as Philadelphia Fed President Charles Plosser, a noted hawk on the FOMC, returned to the question of liquidity. Echoing a sentiment he continues to repeat to this day, Plosser asked in 2007 when it would end.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,042.90 -28.32 -0.17%
S&P 500 1,972.29 -5.51 -0.28%
NASDAQ 4,493.39 -12.4620 -0.28%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs