The Chart That Launched the TARP

Few people understood the real problem as last year’s financial crisis exploded

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Last fall, as the financial crisis was mushrooming, officials from the Treasury Dept. and the Federal Reserve had a hard time explaining to members of Congress why they needed a $700 billion emergency rescue plan.

That’s because regulators weren’t alarmed about stock prices, which most people understand, but about panic in the credit and debt markets, which are arcane to most Americans. “We were trying to explain, ‘What’s happening in the equity market is not really what we’re worried about,’” says David Nason, a top Treasury official in the Bush administration. “People look at you like you’re insane because you’re asking for $700 billion and you can’t provide anything besides a chart to show why it’s important.”

[Read an insiders’ account of how government regulators struggled to contain the financial crisis.]

So here’s the chart that shows what regulators were most focused on. As big lenders started to worry about getting paid back on loans and other investments, the rates they charged for short-term lending—a vital part of the everyday economy—skyrocketed. Had that continued, it would have dramatically raised the cost of doing business for virtually every firm in the nation, triggering defaults and bankruptcies far worse than have actually happened.