Decided to comb the whole 500+ page document that Carney wrote about. Aside for a few minor things (and what Carney found), I found one interesting tidbit. Specifically, it's what Bernanke said toward the close of the Mar 18, 2008 meeting.
CHAIRMAN BERNANKE. Okay. The next meeting is April 29 and 30, Tuesday and Wednesday, a two-day meeting. We will talk about interest on reserves. And we will meet you shortly upstairs for a lunch in honor of Bill Poole. The meeting is adjourned.
March 18 was one day after the public announcement of the Bear Stearns sale to JPM, which later in the month, would be announced to be supported by a $28 billion FRBNY loan to Maiden Lane, along with a $1 billion loan from JPM. In addition, the Fed was rapidly expanding its dollar swap lines.
As you might recall, the ability to pay interest on reserves, including excess reserves, was passed in the Emergency Economic Stabilization Act of 2008, which actually only accelerated the already enacted effective date of ability to pay interest from October 1, 2011 to October 1, 2008:
It's my belief, which you might share, that payment of interest on reserves lubricated and facilitated the whole permanent balance sheet expansion scheme that Bernanke dreamed of, and ultimately got. Prior to that (and long before the Term Deposit Facility existed as an alternative), the only options to drain reserves were temporary OMOs (reverse repos) and outright sales. As you know, and documented throughout the spring and summer of 2008, the latter is what occurred, where Bernanke not only let maturing Treasurys roll off the SOMA, but also conducted outright sales of T-Bills.
A purist econometrician at the Fed might not distinguish among the various places in which asset accumulation and sales took place on the Fed's balance sheet. If the Fed expanded its assets through swap lines and loans to ML, it might be agnostic as to where it drained (T-Bills). Of course, the results as implemented by Bernanke were dire, as lowering Treasury exposure vaporized hot money and decimated money supply growth.
However, it is interesting that the ability to pay interest on reserves as an alternative was already on his mind. According to GovTrack, the EESA of 2008 had already passed the House on March 5, 2008, a few weeks prior to Bernanke's statement at the FOMC meeting.
Perhaps, Bernanke thought Senate approval was imminent and he would get to conduct his grand experiment in permanent reserve expansion a bit sooner. Perhaps the lack thereof created the impetus to employ the alternative (selling T-Bills) and let the world deal with the consequences.
We'll probably never know for sure, but things could have turned out quite differently--not in the end (which is to come)--but drastically different in the sequence of events.