At the beginning of 2008, US Federal Reserve Chairman Ben Bernanke was worried.
Just back from meetings with bankers in Basel, he told a phone meeting of Fed officials that things were looking worse than even weeks before.
"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," he said.
"The concern I have is not just a slowdown but the possibility that it might become a much nastier episode."
So began the most extraordinary year in the Fed's modern history, with the policy makers alternatively confident they had their hand on the situation and fretting that things were out of their control.
It was finally in October 2008 that Bernanke -- a top scholar of the Great Depression -- openly acknowledged that the United States had entered its worst economic crisis in memory.
"It's more than obvious," he told his Fed team at that point -- after Bear Stearns and Lehman Brothers had collapsed, and Fannie Mae and AIG were rescued -- "that we have an extraordinary situation."
"It's not like the 1987 stock-market crash or the 1970 commercial paper crisis. Virtually all the markets -- particularly the credit markets —- are not functioning or are in extreme stress."
"It’s really an extraordinary situation, and I think everyone can agree that it’s creating enormous risks for the global economy."
The Fed released Friday transcripts of the discussions Bernanke led through that tumultuous year that ultimately spelled the worst economic turmoil since the 1930s.
A read through them (www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm) details the drama of plunging home prices and massive job losses, often in the arcane language of economists and finance specialists, but also in human terms.
They show Bernanke's sense of urgency picking up quickly.
- Inflation vs stalling growth -
Just two weeks after that first phone call of the year, Bernanke was advocating strong action: a cut in the Fed's base interest rate of 0.75 percentage point.
"We can no longer temporize. We have to address this crisis. We have to try to get it under control. If we can’t do that, then we are just going to lose control of the whole situation," he warned.
The transcripts reveal Janet Yellen -- then head of the Fed's San Francisco branch and, since the beginning of February this year, Bernanke's replacement as Fed chair -- on top of what was happening in the economy at large.
"I think the risk of a severe recession and credit crisis is unacceptably high," she argued in the January 21 meeting.
And they show Timothy Geithner -- who would become Treasury secretary in charge of rescuing the economy in January 2009 -- constantly urging tough action to support the markets while urging his colleagues to be careful what they say in public, lest they stoke the growing panic.
The sheer complexity of the problem unrolls through the 1,500 pages: the situations in US and foreign credit markets; challenges and requests for assistance coming from foreign central banks; the erosion of US credit markets; widening cracks in the banking industry; and the accelerating pace of jobs losses.
There were some deep differences among policy makers as well, especially in the first half of the year when high inflation posed an opposite challenge, policy-wise, from stalling growth.
Some felt the inflation problem -- much of it from soaring prices of oil and food commodities -- meant the Fed should not slash its interest rate to boost growth.
Even others who disagreed were not sure what to do about it.
Geithner -- not an economist, unlike the rest of the policy makers -- laid down the choice in the Fed's March 2008 meeting.
"We can’t be facing both the most serious risk of a financial crisis and of a deep, prolonged recession in 50, 30, or 20 years, and at the same time the risk of having a very substantial rise in underlying inflation over the medium term," he said.
"It seems to me that we are going to have one or the other."
By the end of the year the answer was clear: the economy contracted at an 8.3 percent rate during the fourth quarter and the country had lost 3.6 million jobs. Inflation was not the problem.