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A 2008 timeline of the subprime mortgage crisis and its impact on the economic meltdown. 

Long before the Wall Street banks imploded in a wave of subprime mortgage defaults and home foreclosures, congressional lawmakers had called upon Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to swiftly rein in predatory lenders whose unorthodox practices in the subprime industry threatened to derail the global economy.

Democratic presidential candidate Barack Obama was one of those lawmakers. In a March 22, 2007 letter, Obama urged Paulson and Bernanke to convene a "a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses" to the wave of foreclosures.

"Regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market," Obama, the Democratic presidential candidate, said in the letter. "We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes. And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly. Please don't let this opportunity pass us by."

The Fed chairman and the treasury secretary declined to act on Obama's suggestion.

In fact, in testimony before the Congressional Joint Economic Committee in March 2007, Bernanke, considered a scholar on central banking, said, "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

Yet Bernanke told lawmakers then that while the problems in the subprime mortgage industry have caused "severe financial problems for many individuals and families," it was highly unlikely that it would affect the overall economy.

Two months later, Bernanke spoke before the Federal Reserve Bank of Chicago about the skyrocketing defaults in mortgage loans and home foreclosures and said the economic issues affecting subprime lenders would not ripple into a broader economic crisis nor would it have an impact on huge Wall Street financial institutions.

Bernanke went even further in his remarks. He said that heavy-handed regulation proposed by Democrats would lead to a further meltdown in the housing market.

"Rules are useful if they can be drawn sharply, with bright lines," Bernanke said during a May 17, 2007 speech at the Federal Reserve of Chicago. "Sometimes, however, specific lending practices that may be viewed as inappropriate in some circumstances are appropriate in others."

By mid-2007, Democratic lawmakers urged Bernanke to deal with banks predatory lending practices that caused the economic volatility in marketplace.

At a Senate hearing in March 2007, Senate Banking Committee Chairman Christopher Dodd detailed a "chronology of neglect" by federal regulators.

Dodd said Federal Reserve analysts first identified eroding lending standards from late 2003 through early 2004. Additionally, Dodd said, the Federal Reserve Board was encouraging banks to come up with more adjustable rate plans. Bernanke was nominated by President George W. Bush to lead the Federal Reserve at the end of 2005.

"Our nation's financial regulators were supposed to be the cops on the beat, protecting hard-working Americans from unscrupulous financial actors," Dodd said at the time. "Yet they were spectators for far too long."

In his speech before the Federal Reserve Bank of Chicago in May 2007, Bernanke said he believed that legislation aimed at tightening regulations could cut off credit and hurt the economy.

"I believe that in the long run, markets are better than regulators at allocating credit," Bernanke said. "We must be careful not to inadvertently suppress responsible lending or eliminate refinancing opportunities for subprime borrowers.

"The vast majority of mortgages, including even subprime mortgages, continue to perform well. We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy."

In a Jan. 20 op-ed published in The New York Times, author Roger Lowenstein said Bernanke, "having devoted much of his career to studying the causes of the Great Depression...was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy."

"One line from his "Essays on the Great Depression" sounds especially prescient today: "To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy."

"Bernanke, who came to the job with a refreshing humility - a desire to be less an oracle like [former Fed chairman Alan] Greenspan than a plain-speaking technocrat -faces exactly this sort of crisis now. Ever since last summer, a meltdown in financial markets has led to daunting losses in the banking industry and throughout Wall Street," Lowenstein wrote.

"Despite having written extensively on how to deal with such episodes, Bernanke has thus far been unable to reinstill a sense of confidence. His faith in modern forecasting models notwithstanding, he failed to foresee that the sudden rise in homeowner defaults, which triggered the crisis, would have such far-reaching effects. And the monetary medicine that he has prescribed, including some of the very tools that he lovingly detailed in his research, have yet to produce a turnaround."

Josh Rosner, a managing director at Graham-Fisher & Company, an independent investment research firm in New York, and an expert on mortgage securities, told The New York Times in November 2007 "the Hill is going to be in for one big surprise" when the full impact of the subprime crisis finally hits huge Wall Street banking insitutions. 

"This is far more dramatic than what led to Sarbanes-Oxley," Rosner said, referring to the legislation that followed the WorldCom and Enron scandals, "both in conflicts and in terms of absolute economic impact."

On Thursday, after years of regulatory inaction by Bernanke and Treasury Secretary Paulson to tame predatory lending practices, lawmakers finalized a $700 billion bailout of Wall Street financial institutions that Bernanke said is needed to avoid another Great Depression.

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