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Inside the Fed's First Financial-Crisis Meeting; Cramer Was Right

Tickers in this article: BAC JPM

NEW YORK ( TheStreet) -- We now know the Federal Reserve was terrified of the crisis brewing in 2007. Something was wrong, but no one knew what.

The central bank called together three emergency conference calls in 2007 as the housing and financial crisis was beginning to frighten investors. The Fed made publicly available on Friday the conversations of meetings from the Federal Open Market Committee (FOMC), the policy-making wing of the Fed.

The minutes of the meetings reveal that Fed policymakers referred to TheStreet founder Jim Cramer's famous televised rant about the crisis, which follows our summary of the Fed proceedings.

Aug. 10, 2007, 8:45 a.m.

Fed Chairman Ben Bernanke held an emergency meeting to inform FOMC members that the central bank would be issuing a statement later in the day to say that it would provide liquidity to maintain "orderly functioning" of the financial markets.

"As you know, financial markets have been fragile," Bernanke said. "They appeared to continue to be fragile overnight. There are difficulties with commercial paper funding and other short-term funding and a lot of concerns about counterparty risk."

Bernanke then turned to New York Fed President William Dudley, then the manager of the System Open Market Account, who revealed that two troubled companies were driving the market's uncertainty: Washington Mutual and Countrywide (now part of Bank of America (BAC) ). Also stoking fears was pressure on commercial paper markets in Europe and the U.S.

"Washington Mutual and Countrywide have both made statements in their 10-Q filings that unnerved the market a little, Washington Mutual saying that they're having some trouble in terms of liquidity and Countrywide saying that there are unprecedented disruptions in the credit market," Dudley said.

Worries about these two companies, according to the conversations, hadn't yet prompted concerns that other financial institutions were beginning to feel the pressure.

Treasury Secretary Timothy Geithner, then the vice chairman of the FOMC and New York Fed president, chimed in to reassure members that the "more diversified" institutions had reported no funding pressure and that money actually was flowing to them.

"That, of course, could change quickly," Geithner said. "But apart from those that are more narrowly in the mortgage market that can't basically sell any non-agency products, I don't think we're seeing any sense of funding pressure."

In retrospect, we know that the crisis eventually spread to virtually every major financial institution in the country. But that was August 2007 -- seven months before the Fed provided a $30 billion loan to JPMorgan(JPM) for its purchase of the ailing Bear Stearns .

The FOMC continued to discuss the federal funds rate, when Dallas Fed President Richard Fisher and Geithner jumped into a minor scuffle.