Accumulating strains across the financial system, including the 1 / 10  BIS central bankers' speeches  collapse of Bear Stearns in March 2008, made it clear that vulnerabilities had risen across the system.
As a result, policymakers took extraordinary measures: The Federal Open Market Committee (FOMC) sharply cut the federal funds rate, and the Federal Reserve, in coordination with the Treasury Department and other agencies, extended liquidity facilities beyond the traditional banking sector, applying to the modern structure of U.S. money markets the dictum of Walter Bagehot, conceived in the 19th century, to lend freely against good collateral at a penalty rate.5 Still, the deterioration in the financial sector continued, with Fannie Mae and Freddie Mac failing in early September.6 But the deterioration from early 2007 until early September 2008 already the worst financial disruption in the United States in many decades was a slow trickle compared with the tidal wave that nearly wiped out the financial sector that September and led to a plunge in economic activity in the following months.