Politics and weather dominated headlines during the first week of September 2008. Sarah Palin made her national debut at the Republican National Convention, and Hurricane Gustav soaked much of the South.
But within days, the news had taken a drastic turn, as a series of stunning events paralyzed America's financial system and profoundly rattled the global economy. Stocks tumbled, and the credit markets short-circuited. Pale, frightened regulators, bankers and politicians tried haltingly to explain how they might avert an economic catastrophe.
The crisis had been long in the making. Home foreclosures had been rising at an unnerving rate for more than a year. Congressional efforts to contain the foreclosure mess had failed. By early September, investment banks were racking up huge losses tied to bad bets on mortgages. The whole housing sector was crumbling.
Then the financial crisis hit with brute force. On Sept. 7, the federal government took over mortgage giants Fannie Mae and Freddie Mac. Separately, the board of Washington Mutual, the nation's largest savings and loan, fired its CEO because of massive mortgage losses.
On Sept. 14, a Sunday, an apparent free fall began. Bank of America announced that it would buy the collapsing Merrill Lynch to save it. But there was no saving Lehman Brothers that day. The once-mighty global financial-services firm, founded in 1850, was crushed by its massive debts and the unwillingness of the government to guarantee its survival.
Trying to bring calm before markets opened the next day, the Federal Reserve enigmatically announced extraordinary measures it was taking, "including enhancements to its existing liquidity facilities." Whatever the words, the meaning was clear: Financial markets were freezing up.
The rest of the month played out with one nightmarish development following another. The Fed slashed interest rates and threw an $85 billion rescue plan at insurance giant AIG. Federal regulators seized the failed Washington Mutual and immediately sold it to JPMorgan Chase for $1.9 billion. The Securities and Exchange Commission banned short-selling of financial-sector stocks; Congress geared up for speedy passage of a $700 billion bank bailout that became known as the Troubled Asset Relief Program.
On and on went the scramble, and down and down went confidence. Commercial paper markets froze up. That spooked businesses that needed short-term loans to buy equipment and make payroll. So the Fed intervened there, too, to keep those markets going. Goldman Sachs and Morgan Stanley morphed into bank holding companies, putting an end to the glory days of investment banks. By month's end, the U.S. economy was plunging and plunging. And no one could tell how far it would fall.
In the coming days, NPR will revisit those nerve-racking days of just a year ago. We'll look at measures taken, the human toll and whether enough has been done to avert the next crisis.