By JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON


WASHINGTON - The global financial system was teetering on the edge of collapse when President Bush and his economic team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant,“scared the hell out of everybody.”

It was September 18. Lehman Brothers had just gone bankrupt, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr.Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

“How,”he wondered aloud,“did we get here?”

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr.Bush is leaving office, as he himself said recently,“faced with the prospect of a global meltdown”with roots in the housing sector he so ardently championed.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street executives who loaded up on mortgage-backed securities regardless of the risk.

But the story of how the United States got there is partly one of Mr.Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr.Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Top advisers to Mr.Bush dismissed warnings that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr.Bush and his team misdiagnosed the scope of the downturn.

Both Treasury Secretary Henry M.Paulson and his predecessor, John W.Snow, say the housing push went too far.

“What we forgot in the process was that it has to be done in the context of people being able to afford their house,”Mr.Snow said.“We now realize there was a high cost.”

Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr.Bush took office, the mortgage giants Fannie Mae and Freddie Mac are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

The president declined to be interviewed for this article. But in recent weeks Mr.Bush has shared his views of how the nation came to the brink of economic disaster. He cites corporate greed, market excesses fueled by a flood of foreign cash, and the policies of past administrations. He blames Congress for failing to reform Fannie and Freddie.

Advocating homeownership is hardly novel; President Clinton did it, too. For Mr.Bush, it was part of his vision of an“ownership society,”in which Americans would rely less on the government for health care, retirement and shelter.

But for much of Mr.Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That made homeownership harder for firsttime buyers.

So Mr.Bush had to, in his words,“use the mighty muscle of the federal government”to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious goals for low-income lending. He pushed to allow first-time buyers to qualify for federally insured mortgages with no money down.

Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away. Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations.“Corporate America,”he said,“has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr.Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,”said L.William Seidman, who led the savings and loan bailout in the 1990s.“To make the market work well, you have to have a lot of rules.”

On June 17, 2002, Mr.Bush was in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million. He was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

“Part of economic security,”Mr.Bush declared that day,“is owning your own home.”

Since then, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr.Bush’s tour.

“I just don’t think what he envisioned was actually carried out,”she said.

In March 2007, the New Century Financial Corporation, a huge subprime lender whose mortgages were bundled into securities sold around the world, was headed for bankruptcy. Jason Thomas, an economic analyst for President Bush, was responsible for determining whether it was a hint of things to come.

Mr.Thomas became fixated on a particular statistic, the rent-to-own ratio. Typically, as home prices increase, rental costs rise. But Mr.Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To him, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

But throughout the spring, Mr.Paulson declared that“the housing market is at or near the bottom,”with the problem“largely contained.”

By that August, credit was tightening amid questions about how heavily banks were invested in securities linked to mortgages. Mr.Bush said that government action could make it harder for the markets to recover.

Within days, Bear Stearns collapsed, prompting the Federal Reserve to engineer a hasty sale.

By September 18, when Mr.Bush and his team had their fateful meeting in the Roosevelt Room , Mr.Paulson was warning of an economic calamity greater than the Great Depression. Suddenly, historic government intervention seemed the only option. When Mr.Paulson spelled out what would become a $700 billion plan to rescue the nation’s banking system, the president did not hesitate.

It was not the end of the government interventions; the administration has since stepped in to rescue Citigroup and the Detroit automakers.

Mr.Bush said in a speech in early January to the American Enterprise Institute that he was too focused on the present to do much looking back.

“It turns out,”he said,“this isn’t one of the presidencies where you ride off into the sunset, you know, kind of waving goodbye.”