Across the Atlantic, the U.S. stock market had plummeted. In only 15 minutes, the Dow Jones industrial average had fallen about 1,000 points, razing the stock prices of some of America’s biggest companies to a single penny. It would later be known as the “flash crash” and would be chalked up to strange technical factors. But in the heat of the moment, it flashed a different sort of danger. To the leaders of the European Central Bank who made up the Governing Council, who that very day had dismissed risks to their financial system, the crash seemed a striking referendum on what they had done — or rather, not done.
That afternoon, their leader, a Frenchman named Jean-Claude Trichet, had told the world in a news conference that the group hadn’t so much as discussed deploying its bottomless resources — its power to print money — to fight the crisis that was enveloping Europe and increasingly throwing into question the ability of nations to pay their debts.
Did we botch this? the central bankers wondered. What do we do now?
The events that followed were, to most Americans, just one more series of headlines about a global crisis.
But in fact, what happened over three days and four nights in May 2010 is essential to understanding the economic predicament in which the world still finds itself. In that moment, the major Western central banks — and their leaders, Ben S. Bernanke of the U.S. Federal Reserve, Mervyn King of the Bank of England, and Trichet of the ECB — made a series of decisions that created the world economy we inhabit today, and likely far into the future.
Through half a decade of crisis that spanned every continent on Earth, it was this triumvirate of central bankers who responded on a scale and with a speed that presidents and parliaments could never muster. They deployed trillions of dollars, pounds and euros, often in concert, always trying to contain the damage. They made plenty of mistakes, some of them costly. But they also have kept the world from a disastrous economic collapse of the sort their predecessors had allowed eight decades earlier, setting the stage for the rise of the Nazis and World War II.
This is the inside story— based on dozens of interviews with people involved first-hand along with documents and other resources — of how, at one particularly crucial turning point, the central bankers pulled it off.
Lisbon, May 6
In Lisbon, the European leaders proceeded with dinner, distracted by the stream of news on their handheld devices but unable to speak frankly about their next steps in front of top Portuguese government officials and their spouses. Later, in an underground conference room at the palace, they talked it out.