Yuriko Nakao / Courtesy Reuters

It was a call I never expected to receive. I had just returned home from playing indoor tennis on the chilly, windy Sunday afternoon of March 16, 2008. A senior official of the U.S. Federal Reserve Board of Governors was on the phone to discuss the board’s recent invocation, for the first time in decades, of the obscure but explosive Section 13(3) of the Federal Reserve Act. Broadly interpreted, that section empowered the Federal Reserve to lend nearly unlimited cash to virtually anybody: in this case, the Fed planned to loan nearly $29 billion to J.P. Morgan to facilitate the bank’s acquisition of the investment firm Bear Stearns, which was on the edge of bankruptcy, having run through nearly $20 billion of cash in the previous week.

The demise of Bear Stearns was the beginning of a six-month erosion in global financial stability that would culminate with the failure of Lehman

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  • ALAN GREENSPAN served as Chair of the U.S. Federal Reserve from 1987 to 2006. This essay is adapted from his most recent book, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting (Penguin Press, 2013). Copyright © Alan Greenspan, 2013. Reprinted by arrangement with the Penguin Press.
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