Here's the central point:
I was there when the secretary and the chairman of the Federal Reserve came those days and talked to members of Congress about what was going on... Here's the facts. We don't even talk about these things.
On Thursday, at about 11 o'clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two.
The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic and there. And that's what actually happened.
If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.
Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.
11 comments:
"...the end of our economic system and our political system as we know it."
That works for me, given the failure of both over the last 3 decades...
so who was behind the run on the banks?who was taking cash electronically out of the system?
What will the effect of all the 7 and 10 year ARM home loans coming due in the future? This is definitely a BIG problem!!1 =oO
Nobody has told the American people exactly what happened and why it happened.
Bingo.
Now I wonder why that is....
How are we supposed to understand what the frap is going on locally and internationally if extraordinarily significant events go unreported?
Please someone clarify exactly which "Thursday" he is referring to. He mentions "September 15th" (which was a Monday). Did this happen LAST week or is he talking about a Thursday in September 2008?
And where was this money going? It's nice to say 'money went out' but unless it was headed to the bank of mattress it was coming in someplace else at the same time.
It may have been cheaper, in someone's mind, in the short term, to say 'we guarantee all accounts up to...' than to make short term loans until the money in the new places got attached to things. However, it is unclear that 'guarantee up to $250,000 by itself worked, because lots of money is not covered by that guarantee.
There are some missing bits here someplace,it appears to me, that the Congressman did not notice.
It was Thursday, September 15, 2008, when this financial run on the banks happened. According to this September 21 edition of the New York Post:
The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.
Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.
The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.
Even I'm shocked at how close the U.S. was from an economic collapse. In the first two weeks of September, we had Lehman Brothers declare bankruptcy, Merrill Lynch purchased by Bank of America, and American Income Group suffer a huge liquidity crisis due to its gambling on collateralized debt obligations. These stories probably created a huge turmoil in the financial markets, sending panicky traders into pulling their money out of accounts. The bank run started. It is only now that we're hearing this because the government doesn't want the American people to know just how close our economy was to a collapse, and that Kanjorski probably inadvertently blurted out just how serious the events were on that day.
It was just a test.
If it had been a real event, you'd be hearing it from the Mailman.
Read http://www.portfolio.com/views/blogs/market-movers/2009/02/10/the-kanjorski-meme
This shows how stupid idea was to let lehman fall..... In the FED and in the SEC must be idiots sitting not seeing the HUGE risk to the confidence at a time of uncertainty
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