Corporations relied on money-market investors for short-term borrowing needs, from making payroll to dispensing dividends. Paulson, acting as President George W. Bush's wartime general of finance, tapped a rarely used emergency power to backstop money-market funds, a key step toward containing the post-Lehman panic.
Another giant step – and a highly controversial one – was to win congressional backing for a $700 billion Troubled Asset Relief Program (TARP) at the Treasury's disposal. This was the legislation that was the subject of the Sept. 18 meeting in Ms. Pelosi's office.
By the time the TARP legislation passed, Paulson and other frontline crisis managers were looking to do something quicker and more powerful than buying troubled bank assets. They decided to use TARP to inject capital directly into financial firms – investing taxpayer dollars to give them an added cushion against loan losses.
Despite all this, the crisis – and the flow of money – continued into 2009, as Mr. Bush handed the presidency to Barack Obama.
"At that point, the US government had already provided a mix of guarantees and capital that backstopped between $10 [trillion] and $30 trillion in financial assets. It was the most extraordinary set of broader guarantees and funding commitments deployed ever ... no precedent for it," says one former senior member of the Obama economic team. "But even with all that, the economy was shrinking."
The Obama team, with Timothy Geithner as Treasury secretary and Lawrence Summers as top economic adviser, launched another wave of rescue efforts for the economy. It would include a massive fiscal stimulus from tax cuts and government spending. It also included new efforts within the Group of 20 nations to inject liquidity into banks from Asia to Europe. At the same time, the Treasury announced that major US banks would undergo "stress tests" to see if they needed more capital.