How The Financial World Almost Came To An End At 2PM On September 18

[RedEarth]

LiveLeak caught a scary moment of previously undisclosed insight by Paul Kanjorski where he reveals some facts that have not been captured by the media previously. At 2 minutes and 20 seconds in the video below, Democratic Representative Kanjorski explains how the Federal Reserve told Congress members about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occurred over the period of an hour or two. And it gets worse. Kanjorski paraphrases the following disclosure by Bernanke and Paulson:

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in 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 out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

Interestingly, Kanjorski, and likely more and more Democrats, are starting to shift to the camp that more time is needed to make a correct decision this time (which may explain Geithner's decision to postpone the "bank-rescue" announcement by one day to Tuesday), instead of rushing into another half-baked plan. Very scary stuff.

video at the link...........

http://zerohedge.blogspot.com/2009/02/how-world-almost-came-to-end-at-2pm-on.html

[here_is_to_hope]

1. Wow, more than a little

...crazy.
"It would have been the end of our economic system and our political system as we know it."
He says that like its a bad thing.

[Frustratedlady]

2. Surely, they know who was doing it?

Aren't we even more vulnerable now?

I've always wondered what would happen if China called in their chits. Was it them?

[specimenfred1984]

22. It was likely BOE, Bank of England

to cover the run on their own banks. It's just a big game to them, we/people are pawns.

[leveymg]

27. According to this financial industry source, it was a bunch of big US corporations

that started drawing down money market accounts on the 15th, leaving Lehmann Bros., a counter-party, high and dry when the run got going in earnest on the 18th, according to this paper by American College of Investment Counsel. Note that a lot of these culprits are getting TARP money, too:

http://www.aciclaw.org/events/ACICPapersAM08/1h_Markets2009_RevolverDrawDowns.pdf
Revolver Draw Downs: Buying Booze On Fears Of Prohibition
Date Published: 29 Sep 2008, 22:53
•
The motivation for the revolver draw downs, to a large degree, has been purely defensive
action in the face of unprecedented financial market uncertainty.
•
The prospect for draw downs going forward is highly uncertain given the defeat of the EESA
legislation in Congress yesterday. Fears are growing that bank lenders may not be able to
honor commitments in the future and continuation of the prevailing mayhem could lead to a
funding blitzkrieg by high yield borrowers upon bank lenders.
During the past two weeks, in what could become a disturbing trend, drawing down revolvers has
become more commonplace. The motivation for the revolver draw downs, to a large degree,
has been purely defensive action in the face of financial market uncertainty. Some
corporations noted that they did not foresee any direct need for the cash and only sought to
curtail the risk that counterparties become unable to fund commitments if a need did indeed arise.
Some borrowers did note a known future need but these actions too were suggestive of
defensive borrowing activity given the earliness with which the money has been drawn
and / or the excess size of borrowing compared to the size of the stated need. An increase
in the number of defensive revolver draw downs that occur going forward is now a distinct
possibility given Congress's defeat of the EESA legislation and the questions now being asked
about whether bank lenders will be willing to honor commitments in the future.
First Data Corp. (FDC), General Motors (GM), AMR Corp. (AMR), Service Master (SVM),
Pinnacle Foods (PFHC), FairPoint Communications (FRP), Jarden (JAH), and Goodyear
Tire & Rubber Company (GT) are among the high yield, and International Lease Finance
Corp. (ILFC) among the investment grade, entities that have recently drawn on their revolving
facilities. Four borrowers (JAH, FRP, FDC, PFHC) noted Lehman Brothers as a revolving
counterparty. Of these four, JAH and FRP got the funding request completed just in the nick of
time before Lehman's bankruptcy filing. For FDC and PFHC, the portion of the funding request for
which Lehman was accountable was not funded. Lehman Commercial Paper Inc. (LCPI) was the
counterparty to these revolving commitments. While LCPI was not included among the Lehman
Brothers entities that filed for bankruptcy protection on September 15
th
, LCPI's assets were
excluded from the Barclays deal to acquire Lehman's fixed income division. With that, borrowers
should not expect Barclays to step into LCPI's revolving commitments. (For more on how LCPI
impacts revolving commitments see: Loans: Reevaluating Revolvers Amid Plummeting
Prices).
What Borrowers Said:
Future Risk Stated
Jarden Corp (JAH): "…recent developments in the financial services sector and the
actions it has taken to alleviate any potential impact to the Company. Jarden determined to
partially draw down on its previously undrawn revolver last Friday, although it has no current need
for the liquidity" (September 15th, press release).
FairPoint Communications (FRP): "…that due to uncertainty in the financial markets, late
last week it borrowed the remaining $100 million available under its $200 million delayed draw
term loan facility as well as $100 million under its $200 million revolving credit facility. The
company believes that these actions were necessary to preserve its availability to capital due
to Lehman Brothers' level of participation in the company's debt facilities" (September
15th, press release).
Page 3
Service Master (SVM): "…to increase its cash position to preserve its financial flexibility in
light of the current uncertainty in the credit markets. ServiceMaster currently intends to
invest the $150 million in short-term U.S. Government securities" (September 18th,, 8K).
General Motors (GM): "…intends to draw down the remaining $3.5 billion of its $4.5 billion
secured revolving credit facility to maintain a high level of financial flexibility for its ongoing
restructuring during these uncertain times in the capital markets" (September 19th, press
release).
Known Future Need Stated
International Lease Finance Corp. (ILFC): "…requested to borrow the maximum principal
amount of $6.5 billion under its three unsecured revolving credit facilities from the lenders party
thereto. As of September 18, 2008, the company has received approximately $6.4 billion of the
requested amount. The company expects to receive the remainder of the funds (less than
$100,000,000) by September 19, 2008. The company drew on the credit facilities to provide
it with liquidity to repay its commercial paper and other general obligations as they
become due " (September 19th, 8K).
AMR Corp. (AMR): "… intent to draw its $255 million revolving credit facility. The draw on the
credit facility is intended to reduce the amount of a potential credit card hold back reserve"
(September 25th, 8K).
Goodyear Tire & Rubber Company (GT): "...The Reserve Primary Fund, a money market fund,
has delayed the payment of requested redemptions pursuant to a Securities and Exchange
Commission Order allowing an orderly disposition of its securities. This action was the
catalyst for the company’s decision to draw the facility at this time" (September 25th, press
release).
In the case of GT, the market disruption is opposite to what o

[Frustratedlady]

47. Gee, it is more involved than I thought.

That's scary as hell. Thanks!

[Phoebe Loosinhouse]

3. I always suspected it was something like that.

And really, Paulson looked grey and shakey, which I don't think he was faking. They saw the abyss right in front of them - the collapse of the whole frigging system.

What's in place from the same thing from happening tomorrow?

[DKRC]

4. It's on Obama's watch now

That's all that matters to the rat bastards that brought us to this point. Dancing a jig while the world economy crashes.

:grr:

[marketcrazy1]

5. whats in place now???

Treasury guaranties and the full faith and credit of the U.S. government.... TAXPAYERS TO THE RESCUE!!! YIPEEEEEEEEE!!!!!!

[CoffeeCat]

29. I knew some serious shit had gone down...

When you saw Paulson on those Sunday talk shows and also giving press interviews--the man looked ashen. He looked
like one of the guys from "Trainspotters" coming down off heroin.

We also hear that Paulson and others threatened Congress members with "martial law" if the bailout wasn't passed.

It's all of this behind-the-scenes stuff that us minions don't know about. But they sure as hell know.

I suspected that Geitner's Monday speech was postponed because this is supposed to be a terrible weak for
the stock market. Geitner is supposed to define what is wrong with the banking system and discuss their
solutions. At this point, I think the majority will only hear the 'what is wrong' part and panic. No one
really believes that there are solutions any more.

Everyone is fricking panicked. The economy is like a dormant volcano that's been spewing up ash more and more
frequently.

[grasswire]

6. in English?

Is this the right interpretation? Certain entities hostile to the U.S. hold enough money in American money market funds that they can draw it off (I assume that means transfer it elsewhere) in an amount within hours that will collapse the world economy? Why aren't there some kind of safeguards?

[glitch]

7. The safeguards were removed for this very reason.

Engineered economic collapse is part of any feudalist, I mean, fascist takeover. And they call themselves capitalists, amoung chortles and slurps and belches.

[HamdenRice]

11. "Certain entities hostile to the U.S." -- no it was grannie and grandpa down the street

The money was withdrawn by people who have money market accounts. Elderly retired people tend to be disproportionately represented in that group.

They were withdrawing their money because they can't afford to see their savings disappear in their money market accounts.

It was a mass run on money markets by American depositors, not "hostile entities."

[GliderGuider]

16. Tens of billions in a single hour?

That doesn't sound like any grandparents I know.

[HamdenRice]

18. How many grannies do you know?

Many millions of them?

I said grannies were over represented, not that all money market money was grannies.

If you care to delve into the factual world, you will learn that money market accounts are basically treated as interest bearing checking accounts.

The hundreds of billions being withdrawn was mostly being withdrawn by consumers, businesses, institutional investors and companies that had those accounts -- not by sinister, unnamed "hostile entities."

September 18th was an authentic run on the banks. The Fed's commercial paper program stopped it -- along with the guarantee of money market accounts. Although the guarantee would have been a disaster without supporting the basic value of the underlying assets through the paper purchasing program.

THANK GOD IT PASSED.

[GliderGuider]

19. Can you point me to some evidence?

Money market funds suddenly draining in the middle of the day doesn't sound like consumer behaviour. Just having to go through brokers across the country should have spread out the time phasing. do we know for sure who was withdrawing the money and where it was going? Can you point to some third party evidence to support your contention that it was a consumer run? Because it sure doesn't smell like one. It smells like economic warfare, sort of a financial "time on target" barrage.

[HamdenRice]

20. First you have to try to understand what "commercial paper" and "money markets" are

If you do, then you can read this article:

http://www.nytimes.com/2008/09/18/business/yourmoney/18money.html

I'm not sure you're going to "get it" if you wrote a sentence like this: "Just having to go through brokers across the country". Withdrawing money from a money market fund is often like writing a check or making a withdrawal from a saving account.

[DCKit]

21. Only a coordinated effort would move that much money that fast.

You can't possibly expect anyone to believe that every citizen with a MMF decided to cash a check on September 18th. Occam's razor says it was an intentional, coordinated attack.

[HamdenRice]

23. Exactly the opposite. Only uncoordinated market behavior could move money that fast

Perhaps what many are not grasping is how the news played out that day. For people who follow the markets -- fund managers, retirees and people just interested in economics -- it was a scary day. It was like a presidential assassination day. People just stayed glued to the tv listening to about how money markets were going to break the buck.

For many middle class people, money markets are their savings. No one knew how much of their super safe savings would disappear that day, and people just started withdrawing money. Keep in mind that the news had been bad for several days.

It's much easier to imagine a market crisis causing people to sell than it is to imagine an organize conspiracy. It's just like a market crash on the stock market -- which generally involves uncoordinated behavior by millions, not coordinated action. People watched the ticker and when it got super scary, they called their banks and sold.

On edit: I don't want to give the impression that I'm saying there are never coordinated attacks on markets. I've written elsewhere that the credit default swap market have caused hedge funds and other institutional investors to make coordinated attacks on financial institutions, worsening our financial crisis. I'm just saying that the money market fund run wasn't one of them.

[GliderGuider]

24. Let me get this straight

The evidence you offer in support of your theory about an event that almost crashed the world is a New York Times story? Coupled with what? Is there evidence that money market deposit accounts were the major players in this? Because if they weren't, if it was actually money market funds doing the bulk of the redemptions, then my comment about brokers still applies (with all that implies about orchestration). Can you point me to anything except an NYT story that supports your scenario of a bank run caused by millions of grannies simultaneously writing personal checks to cash on their money market deposit accounts? Remember that it's the funds that were at risk due to their lack of FDIC insurance. Deposit accounts were insured even before this event, so there would have been much less incentive for the behaviour you're conjecturing about.

I can't buy your story without some evidence.

[HamdenRice]

25. Sorry, but we're in different factual universes

I have said repeatedly that grannies are over-represented, but give it a break, it was something of a joke.

As I've stated over and over again, a diverse group of depositors made a run on money market funds, which are basically like checking/savings accounts. The point is, it wasn't some secret conspiracy. It was a genuine national and international run on money market funds that was reported all over the world.

If you think that the NY Times is disqualified from the set of persuasive factual sources, then we live in different factual universes.

Even more distressing is the fact that you seem not to comprehend what a money market fund is, or what it's relationship is to commercial paper, and seem militantly resolved not to understand that factual point as well.

I would never be able to convince you with factual reporting about the run of September 18 if you dismiss out of hand anything in the NY Times.

[GliderGuider]

26. Here's a chance to educate me, then

Describe for me the difference between money market funds and money market deposit accounts, with respect to investment and redemption. Perhaps I'm missing something by being a benighted Canuck, but up here if you're invested in a fund you need to go through your broker to redeem. Is that not the case, and if not, is there any difference between a fund a deposit account (as is stated in the NYT article)?

[CoffeeCat]

31. Furthermore....

I think the cashing out at such high levels---indicates that the source of these cash outs came from sources
that the government could not control. That points to many, many small deposits held by the very people that
you describe--grannies and others who had savings in MM accounts.

If governments or specific foreign interests were going to do something like this--I see the US as being
able to stop some of it. Bush was still on the job. I'm sure he'd just throw out a few bullying moves or
some threats, and he'd have control.

Plus, Paulson wouldn't be as gobsmacked by governments--that could be bribed, paid off or threatened. He'd be
more terrified of the confluence of "We The People"--which is an uncontrollable entity--to some extent.

As I said previously--we cashed out during that time and closed a MM account.

I think many are forgetting what those few days were like. The shit really hit the fan fast.

I don't know if all monies withdrawn were from small investors. However, I bet a lot of it was. It could have
been a combination of big and small investors too.

[GliderGuider]

36. Seek and ye shall find (in Wikipedia)

Money market deposit account

Comparison with "Money Market Funds"

Although money market deposit accounts have a similar name to money market funds, they are not the same: a money market fund consists of assets held by a brokerage (or bank) on behalf of investors, while a money market deposit account is a deposit at the bank, and hence a liability of the bank towards depositors.

A money market fund is a kind of mutual fund (technically, a regulated investment company). Investors receive shares in this company, which buys securities (for example, commercial paper). There are rules on what kind of securities may be held and rules about diversification. Thus, investors have risk on the assets, but not on the bank.

A money market account is simply a liability of the bank (albeit a high-priority one). It is a note on the bank's books that it owes someone money. It has no specific assets; essentially, it is backed by the entire bank. Thus, investors have risk on the bank, but not (directly) on any assets that the bank may invest in with these deposits – in fact, the deposits will not in general match up with any particular assets: they are simply one among many liabilities of the bank.

So which one got the runs that day? As I remember it was a couple of funds that broke the buck, which made everyone freak. Deposit accounts were safe in comparison, since they aren't directly backed by assets that were losing value. Your checkbook-wielding grannies are looking more illusory every moment.

It may or may not have been a conspiracy. In the absence of an investigation though, your position that it was a natural event is simply a statement of faith. All we really seem to know at this point is hat it was big, and that the potential outcome was felt to be serious enough to cause TPTB to take extraordinary measures to stop it.

[HamdenRice]

38. It's only a "statement of faith" to you because you disbelieve the New York Times

Anyone can play that rhetorical game. You just discount all fact based reporting and demand proof. When the proof doesn't suit your "peculiar" criteria, you can declare that the statement in question is not proven.

As for money market funds, there was indeed a run on them, and they do indeed cater to many consumers -- as well as businesses and institutions.

The reason I said that grannies are over-represented is simply that for most people who engage in financial planning and have 401K retirement plans, generally, one invests in equities while young and moves those funds into the safest possible investments on retirement -- ie generally money market funds.

You seem to be unable to understand how there could be a run on money market funds because there is a delay in request and payment? Is that your question? The answer is easy. When the thousands of customers call, say TIAA Cref and say they are scared about their money market funds because of the financial news and ask that money to be transferred t-bill funds, then on that day, TIAA-Cref has to sell the underlying asset, namely, commercial paper. The fact that the customer may wait 3-5 days to get paid does not somehow prevent the run on the day that the order is made. Heck, you can do this on-line or at your ATM, by phone or fax and the order causes a same day sell order in the commercial paper market. Because so many people were selling at once, there was a liquidity crisis.

Why you have focused on my joking "grannies" is puzzling because I said all kinds of investors, including institutional investors, park their money in money market funds and all kinds were involved in the well documented run on the market. There was, however, a concern in the financial press around that time about retirees, who were disproportionately represented in money market funds, and could least afford to take a hit.

Is that what you're trying to understand? It's very unclear where your confusion is.

Do you think that a conspiracy is behind every market drop in every financial market? Are you saying you don't believe that the mass of investors of all types can cause a market drop?

[GliderGuider]

40. The evidence I'm looking for

Is about what did happen, not what might have happened or could have happened. I want to understand what actually took place during those few crucial days. I can't get that from an NYT story, particularly not that one. While it may be (probably is) completely factual in every statement, it doesn't contain the information that would let us know what actually took place. The story was published on the 17th, and was part of the widespread business reporting on the money market issue. We can't get any insight from it into what happened a day later on the 18th. The evidence I'm seeking is a look inside the the activity of the next day -- how much of the redemption was from funds and how much from deposit accounts, how many of the orders were institutional and how many were retail, who the big redeemers were, things like that.

Without that, anything you or I say is nothing but speculation.

Do you have any idea where I could find information like that?

[HamdenRice]

41. It's puzzling what you are looking for, and if it's possible to answer your question

You rule out the NY Times. Do you also rule out other mainstream media reports?

You also want evidence of a negative? That there was not some financial conspiracy? Is that what you're asking for?

Big institutional investors generally don't invest in money market funds because, as big investors, they can get higher returns elsewhere. Many companies park some of their money in money market funds, but as the following article states, money market funds are generally marketed to small investors and savers as an alternative to savings accounts. So if most of their customers are small investors and savers, doesn't it stand to reason that most of the run was by small investors and savers? Also, the run had started days before September 18 and built up to the freeze of September 18, so your notion that a half trillion just suddenly disappeared on that day with no warning just doesn't fit with the facts:

http://online.wsj.com/article/SB122160102128644897.html

In a sign of how the financial crisis is hitting small investors, a huge money-market fund, the Reserve Primary Fund, announced Tuesday that it lost money as its net asset value fell below the hallowed $1-per-share level, the first time one of these conservative funds has had a loss in 14 years.

The culprit was debt securities it holds issued by Lehman Brothers Holdings Inc.
...

Money-market funds are regarded as super-safe vehicles for ordinary investors looking for a place to harbor their cash. They are designed to sell for $1 per share, so the Primary Fund's loss is a sobering event. "Breaking the buck" is a rare phenomenon that hasn't occurred since the aftermath of the Orange County, Calif. bankruptcy in 1994. Since then other money-market funds have had losses on securities they hold, but their managers have injected fresh capital into the funds to restore them to full value and make investors whole. But in this case, investors are left with the loss, a blow to confidence in these funds, which are often treated like bank accounts.


http://www.dallasnews.com/sharedcontent/dws/bus/columnists/pyip/stories/DN-moneytalk_06bus.ART.State.Edition1.26b606e.html

In an unprecedented effort to plug a run on money market mutual funds, the federal government has put into effect a temporary guaranty insurance program for money funds.

The program, which started last week, will insure participating money market funds until Dec. 18. After that, the Treasury Department can decide whether it wants to extend the program to Sept. 18, 2009.

<end quotes>

There were hundreds of real time reports about this as it happened in mid September. Just precisely what is it that you don't believe?

[GliderGuider]

42. To clarify things a bit

I have no idea if there was a conspiracy or not, and I'm not claiming there was. I'm not looking for evidence that there was or that there wasn't (that would be nice, but I'm not going to find it). I'm looking for information about what actually happened leading up to the freezeup, especially regarding the character of the transactions that took place. Even if I find that information it may not tell me anything, but at least I'd be looking at actuals rather than speculation.

The reason you sense some skepticism in my questioning is that the OP talked about $550 billion in redemptions over the course of a couple of hours. That's a lot of money by anyone's standards (others have said it might not have been that much, but that's what the OP said.) You came in implying that it was due to retail investors essentially writing checks to themselves. If the total amount was indeed 500 billion dollars, that would have meant 10 million investors each doing a $50,000 transaction within the same two hours, which is absurd on its face.

You say there were other investors. OK, so if only a tenth of the money flow was due to freaked out great-uncles with checkbooks (your Dallas News story says only $44 billion was moved by small investors), who was moving the rest of it? We know there was a run on the funds, but exactly who was running? Knowing the players could give us a deeper insight into their motives. At this point we don't know enough to rule anything in or out.

I would dearly love to see who placed the orders, but that might be as hard to find out as who bought those put options on United Airlines on Sept. 7, 2001.

[CoffeeCat]

30. That's what I was wondering...

People were really scared. The stock market was tanking. People were afraid of what
was going on with the banks.

I wondered why everyone early in this post assumed it was large or foreign entities who
were cashing out.

We drained a money-market account and closed it, during all of that.

We've got a CD that matures 3/30, and I'm counting down the days--until I can cash out that
account.

It's also interesting that the govt tried to lessen fears by increasing the FDIC insured amount to $250,000.
Our bank, heavily touts this, and has launched a campaign that touts how successful and solid they are. Funny
thing is...this bank is rated only 2 stars by Bank Rate. A bank that is practically failing! The OP really
explains why the banks have launched PR campaigns, designed to calm fears. They know what
went down, behind the scenes. They've all been instructed to do whatever is possible to keep people with
the banks. Regardless of the truth.

After Washington Mutual failed--there were at least 5 articles that mentioned (buried in the middle of the article),
that the FDIC's resources were "stretched" after that bank failure. That they covered
WaMu's losses, but were "stretched." That's only one bank and the FDIC was just about tapped out?

I decided then, that I was taking no chances. Our checking acct is for bill-paying only. Everything else is
"in the mattress" until all of this uncertainty is finished. If the info in this OP is to be believed, it almost
all collapsed, but they hid that from us. And what's to stop another collapse??? Things are worse now, then they
were back then.

Jezus!

[snot]

32. sorry but you are insane. i was watching a lot closer than most grannies,

and am highly educated -- i was worried about my savings since i was on the brink of retirement myself, trying to figure out what was going on, called my broker who reassured me, etc. etc. But like many others i know who were smart, educated and paying close attn, i was still in the dark.

The worst of the crash occurred more than a week later, on Oct. 7. There is no way in h*ll the average grannies were figuring all that out that early -- even the insiders claim not to understand what they'd created.

[earth mom]

8. Article should have said-Collapse of a CORRUPT economic and CORRUPT political system as we know it.

Too bad it didn't happen and we are still stuck with the same bullshit and the same corrupt mo fos in charge. :argh:

[HamdenRice]

9. Some of us DUers were SCREAMING about this in real time. We were called shills and worse.

WTF do you think the bailout was about?

As it turned out, Paulson was incompetent, but did shore up the commercial banks enough to keep things going.

It was Bernanke -- the closet Keynesian who's been studying how to prevent the next Great Depression for decades and was unbelievably the right guy in the right place at the right time -- who has kept the banking system from collapsing entirely. He's the one who pumped $2 trillion into the commercial paper market (which is the flip side of money market funds).

On that date, the money market funds "broke the buck," which is to say, that although they're supposed to be like a checking/savings account on that day, if you put $100 "in the bank" you got a balance of $99 the next day. That's because several banks defaulted on their commercial paper, which is what the money market funds invest in.

Here's a chart of the bailout so far:



Notice that the overwhelming bulk of the total multi trillion dollar bailout has gone to purchasing commercial paper. That means, keeping money market accounts from imploding and allowing businesses to "write checks" in the commercial paper market.

Although Bernanke has refused to tell us exactly what commercial paper he's buying (he doesn't want a run on those particular paper issuers), I assume that he hasn't lost any money, simply because the money market funds have not broken the buck since September 18.

That means that Bernanke not only saved the system, but is making money for the Fed -- to the tune annualized of around $40 billion per year.

Not bad, eh? Making $40 billion for the government while saving the global financial system at the same time?

And when people scream about Bernanke throwing money at corporations, giving money away, about where we're going to get the money to replace it, rarely do they realize that the answer to "where the money is going to come from" is: from the people who he lent it to, who have already paid it back (most of it is 30, 60 and 90 day paper), allowing Bernanke to buy yet more commercial paper, make more money for the Fed, and continue to keep the system from collapsing.

On edit: If some of my other data is right, then the 30, 60 and 90 day paper has already been paid back to the tune of $1.5 trillion, with interest.

That emergency facility is being wound down rather than recycled (only $270 billion outstanding now), which means that the Fed won't make nearly as much as $40 billion on an annualized basis, unless the crisis hits again and is resolved in the same way.

[Hissyspit]

13. It was Dec. 2007, if I'm recalling correctly, that some DUer

posted a very disturbing chart that let me know we were heading for disaster. I can't remember what the chart was now, but I remember it dropped dramatically very quickly. I emailed it to some friends and I wish I could find that email, but I changed computers and I don't think I have it anymore. Do you know what I'm remembering. It may have been something to do with the credit market.

[HamdenRice]

14. I don't know about Dec 2007. But here's my post of September 18, 2008

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4027506

How your cashing a check is related to the current credit catastrophe


<end quote>
I was writing about it in real time. I'm glad that this blogger has posted the video evidence confirming what we were saying: If something wasn't done, in a day or two, you wouldn't be able to withdraw money from the bank, write a check, use an ATM or cash a paycheck.

If you think the recession is bad now, what do you think it would have been like if those things had come to pass?

[Hissyspit]

34. I remember your post well. Sep. 18. I was trying to remember what I was doing that day...

and now I remember. I was reading your post.

But there was something back around Christmas a year ago. It shocked me and it was a chart.

[GliderGuider]

35. Was it a chart of the banks' non-borrowed reserves?

That one sure made me weak in the knees when I saw it for the first time.

[Hissyspit]

43. That's quite possible. What did that look like in Dec. 2007?

[GliderGuider]

44. It looked like this:

[Hissyspit]

45. That's it. Scared the shit out of me.

And I had to come to DU to find out about it.

But the Bush admin had to wait to Sept. 2008 to worry about it.

The "housing bubble" was bursting (like DUers had said it would two years earlier), and we were being told we weren't in recession, even though DUers (and me) said we were.

Thanks so much for finding that.

[girl gone mad]

15. This had nothing to do with the bailout.

They solved the problem by extending FDIC insurance to money market funds.

As I argued then, and as is apparent to most now, TARP was little more than a parting gift to WS insiders, rushed though without proper debate under threat. CP lending had nothing to do with TARP, either.

[HamdenRice]

17. It depends on what you mean by "bailout"

DUers routinely cite the multi trillion dollar figure as the cost of the "bailout" which everyone assumes is bigger than TARP and includes the Fed.

The Fed spent up to $2 trillion buying commercial paper. Commercial paper is what money market funds invest in. Thereby, the Fed supported the commercial paper market from collapsing and commercial paper from losing it's value.

It was the $2 trillion commercial paper purchase program that brought the money market system back from the brink.

If you want to argue that the "bailout" consists only of TARP, fine. But then you have to acknowledge that the entire size of your "bailout" is only $350 billion and not several trillion.

If the "bailout" was only TARP, then don't say that the bailout costs trillions of dollars.

[Sanity Claws]

10. Who engineered the run on the banks?

This much happening so quickly indicates that it was engineered. By whom? Cheney cohorts? Cheney wants Chaos.
I'd like to see an investigation into who was involved in the bank run and why.

[HamdenRice]

12. Jesus, Mary and Joseph! If you were reading the news at the time it was regular folks

It was a run on the banks by mostly American depositors who had money market accounts.

There is no secret. There's nothing to investigate. Everyone who cared to know about it at the time knew why it was happening.

That's why it was so fucking scary.

[DemReadingDU]

28. ordinary grannies, at the same time, on the same day, went on a bank run?

I'm a granny, and I didn't do any bank runs.

Personally, this sounds more of a big fund(s), doing this kind of bank runs that could have collapsed the system.


edit: and I was reading the news, the blogs, and watching TV. Besides, a person withdrawing a huge amount of money (over $10,000) would be tracked by the authorities.

[shrike]

37. That makes a certain amount of sense

Because I can recall a rash of media stories on "how safe is your money market" just prior to that time.

[GeorgeGist]

33. Poor Mr. Kanjorski ...

got played by Bernacke, and taxpayers got stuck with the tab. Heckuva job Paul.

[GliderGuider]

39. Delete - wrong place

[TheCentepedeShoes]

46. They are talking

about this on KO as I type.