The Federal Reserve went on a rescue mission last fall to keep the U.S. economy from launching off a cliff.

In his new book, In Fed We Trust: Ben Bernanke's War On The Great Panic, David Wessel, The Wall Street Journal's economics editor, writes about Fed Chairman Ben Bernanke's attempts last year to fend off financial disaster.

After the 2008 financial meltdown, the Fed greatly expanded its powers, Wessel tells NPR's Linda Wertheimer. It shifted from a public face of making periodic changes to the interest rate to saving brokerage Bear Stearns; helping the Treasury Department take over mortgage giants Fannie Mae and Freddie Mac; letting Lehman Brothers shut down, and saving insurance company AIG.

At the same time, the Fed also released billions and billions of dollars, which Wessel says set up it to become the fourth branch of government.

The Fed was "trying to keep the economy from starving," Wessel says.

Wessel calls the period in our economy "The Great Panic," and he tells Wertheimer that when the Fed let investment bank Lehman Brothers fail, it was a "colossal mistake." And "it was, if not the catalyst for this terrible economic shock, at least a contributing factor."

Those involved in the decision to let Lehman fail knew that "the market would be upset" and it would hurt those invested in the company, but they could have no idea of the huge reach of the ripples of their decision. Allowing Lehman to fail led people all over the globe to wonder if any bank was solvent, Wessel says.

Most people in the markets never figured the government would let Lehman fail, because the government had saved Bear Stearns. As one European central banker told Wessel, "in Europe we don't let dry cleaners fail. It never occurred to us that the U.S. would let Lehman go."

In addition, because of Lehman's reach all over the globe, its failure was felt from London to Paris, Japan to China, Wessel says.

"The Fed, with some help from the Treasury and the Congress, has succeeded in preventing another Great Depression. The economy has pulled back from the abyss," Wessel says, but the economy has yet to return to "normal."

Wessel also says we just don't know yet if the Fed didn't "plant the seeds of the next financial crisis by bailing out these huge companies."

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