How Close We Came to Total Meltdown-9/18/08-"Within 24 Hours-World Economy Would Have Collapsed"

[kpete]

How Close We Came to Total Meltdown
On C-Span, Rep. Paul Kanjorski (D-PA) explained how the Federal Reserve told members of Congress about an electronic run on the banks "to the tune of $550 billion dollars" within "an hour or two."

According to Kanjorski, on September 18, 2008 the Fed tried to "stem the tide" by pumping money into the financial system but it didn't work and decided instead to announce an immediate increase in deposit insurance to $250,000 per account to stop the panic.

Said Kanjorski: "If they had not done that, their estimation is that by 2 p.m. 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."
http://politicalwire.com/archives/2009/02/10/how_close_we_came_to_total_meltdown.html

I saw the video the other day, ???...!!!
http://www.youtube.com/watch?v=INAGMSARPYw&eurl=http://www.dailykos.com/storyonly/2009/2/9/234340/6189/142/695504

[NYC_SKP]

1. Sometimes I wonder if that would have been so bad over the long term.

Our economy, and increasingly the global economy, has defined success as never ending expansion.

It simply isn't sustainable, sooner or later collapse is inevitable unless the model is transformed into one that seeks stability, not expansion.

But I'm an engineer, not an "economist".

I'm about making things work and making them last, not making people rich at the expense of others.

[kpete]

3. i am an art teacher,

when an engineer and an artist agree, chances are, we could be right...kp

[NYC_SKP]

10. Ah, Science and Art.

Inextricably connected, but so are micro and macro economics--like organisms there are limitations.

My alma matter had "to Art and Science" on the North end of the original "foundation building", couldn't find a pic but found this one on the engineering building. I studied architecture there, very much a marriage of art and science. :toast:

[Jackpine Radical]

4. "Never-ending expansion."

Tell me, Grampa, how does a Ponzi scheme work again?

Edited to correct "expension" to "expansion." But now the more I think about it, the more respect I have for ol' Sigmund F.

[NYC_SKP]

11. Ponzi scheme, stock market, social security, lottery, all pretty much the same

short sighted crack addict way to go about business.

Social security, even if not raided, was a beautiful program as long as our population kept growing.

Not terribly sustainable unless we plan to colonize Mars and then other planets.

[Jackpine Radical]

15. Any health care/retirement system is sustainable in a steady-state

if you fund it properly. And that requires that you have your values straight. You can't fund social safety nets adequately if you insist on also having a military the size of ours, and insist on using that military on empire-building adventurism, all the while funding a parasitic overburden of billionaire captalists.

[glitch]

26. Excellent response. nt

[Hannah Bell]

31. what you said. the only thing that's not sustainable is the ever-increasing

concentration of wealth & power at the top of the pyramid.

[NYC_SKP]

33. Key term: "steady state"

I didn't mean to suggest that a social security system, designed well, couldn't work.

But for years those who told me "don't worry, it will always be there" worked from an attitude that more people pay into the system as the years pass, which is not steady.

Also not steady are the numbers of people who qualify for what historically have been a growing number of programs of support.

Someone didn't do the math well.

Also, I wouldn't support dismantling the military to support an unsustainable health or social security system.

Instead, I would support just dismantling it anyway AND making sure that the other plans are solvent of their own design.

[zipplewrath]

27. Constant Wealth

I got into it with some right wingers a few years back over the concept of what I called "constant wealth". I challenged the notion that most people/business/industry ever "creates wealth". I suggest that wealth was constant and all we did was move it around. If I create a computer, I "remove wealth" from a typewriter (and really a few other machines). This was extremely challenging to them of course because it challenged the underpinning of their philosophy that the wealthy had some how earned or created the wealth they controlled. It brought their system back to a concept of winners and losers and to some extent there were more losers than winners. Furthermore, natural resource industries like oil, coal, gold, diamonds, etc. merely collected "wealth" and sold it. The wealth already existed, they just managed to get control of it and mark it up. Yes there might be some "value added" through the refining process, but in the end that was still "removing" the value from existing gold, or oil, or whatever.

It was mostly an exercise is challenging right wingers and their "free market" philosophies. It was founded a bit in my technical background and the fact that most systems have functional limits upon them (constant mass/energy, conservation of momentum, equal and opposite reactions, that kind of thing). But since then, I've begun to think I'm closer to the truth than they are. I suspect that the vast majority of "economic growth" is actually "economic transfer" from one closed system to another. The US does well in part because Asia is having a collapse. The oil industries success is often at the "loss" of the transportation industry.

But the flip side is that it is inescapable that by any rational method of quantification, the "wealth" of the world has "increased". Create a measure, and by whatever means, there is more of "it" now than 2000 years ago on a global scale. Which hints at the core of economic growth. "Wealth" is us. People are what "create wealth" because people ARE wealth. One person on earth needs no gold. Two have precious little use for it. Economic growth needs to be connected to people. And furthermore, the upper limit on growth is the earth's capacity to have that many people on it.

THAT argument we can have. Some would suggest we've already passed it. Some will suggest there is still far more room. But the important part is acknowledging that the measure of economic expansion is the efficiency of how we use the earth and its resources to support "us". The more efficiently we use our resources, the more wealth we can have and the larger economic expansion we can have. But one must go hand in hand with another. AND, growth is NOT just taking it from someone else, or keeping it from someone else. We may never achieve a system where wealth is "spread" uniformly around the world, but we can stop suggesting that the imbalances are somehow an indication of overall growth. When one group of folks is on the rise, others may be on the decline. It may be that this is a proper and natural "re balancing" of a disparity. (And may be exactly what's going on now). Or it may be a act of domination of one population over another. And when you waste your wealth, you waste everyone's wealth.

[byronius]

29. Interesting concept. Technology takes wealth away from its predecessor.

I've always thought capitalistic 'free enterprise' to have no more logical basis than a shark tank, and that the system itself is indicative of an undeveloped set of ideologies, based primarily on the weaknesses of the primate hind brain, and the human inability to work cooperatively because of it.

Consider this -- The Absurdly Simple Theory Of Everything, soon to be tested at the Hadron Collider, may, in a short while, render all 'business' unnecessary, as it would provide the human race (in a very short time) with the tools to go anywhere in the multiverse instantaneously, as well as giving us complete control over matter and energy.

The true 'Star Trek' economy may be here sooner than we think -- the Ultimate Destroyer of All Wealth, by your model.

[BeatleBoot]

2. I would keep the books open

on this one.

[Greyhound]

5. Does the fact that this can even happen not indicate that we have to change the system?

I mean really, our entire nation's well being is dependent on a system so unstable and rigged in favor of it's owners that if the herd is panicked, we can be ruined over night. Is that sane?

[AndyA]

6. Freightening.

And whoever is responsible for allowing/letting/making this happen needs to be charged for their crime.

More negligence on the part of the Bush Administration? (Just like ignoring the warnings before 9/11.)

Lack of oversight?

Corruption?

Regardless, someone needs to be held responsible for this mess. It didn't create itself.

[Fleshdancer]

7. and when McCain was suspending his campaign, Obama was recommending the FDIC increase

Flashback to last September:

Obama Backs FDIC Expansion

John McCain made his move early in the game -- and now Barack Obama is seeking to make a major splash in the bailout debate following Black Monday.

Adopting a proposal backed by some House Republicans, he wants to hike the FDIC insurance limits from $100,000 to $250,000, which would, presumably, restore faith in banks while giving small business owners a place to park their cash.

It's not clear precisely how this would work or what the fiscal implications would be, but he's planning on taking it up with Congressional leaders this morning.

http://www.cbsnews.com/stories/2008/09/30/politics/politico/thecrypt/main4488425.shtml

[xiamiam]

8. why did this come from kanjorski?

[Phoenix-Risen]

9. Makes you wonder who or what may have been

behind this. I suppose that it's possible that hundreds of "little old ladies" all panicked at the same time, but doesn't it seem more likely that more nefarious elements were at work?

Didn't 1 individual "break" the British pound back in the late 80's or early 90's and profit by billions? If this story is true, I think some forensic accounting is called for to follow the money.

[A HERETIC I AM]

13. That one individual you're referring to is George Soros

http://en.wikipedia.org/wiki/George_Soros

[Phoenix-Risen]

28. From the Wiki

George Soros has made an immense fortune manipulating international stock and currency markets.

But he's on "our" side now so he wouldn't do such a thing. And what would even be his motive? According to the article he absolutely despises the Bush family and... oh I think I see!

[lukasahero]

39. "our" side?

Who's side would that be?

[terisan]

21. George Soros (major player in US politics now) made a billion shorting British pound nt

[terisan]

12. Kanjorski is basically saying he and congress gave all decision-making to bankers because

Congress doesn't understand banking system.

We need to get him and the rest of them out of Congress.

[AllexxisF1]

14. Ok this is seriously the most important news leak of the year.

Kanjorski spills the beans about what happened last September.

Someone did a major electronic run on the banks.

That means it was either a country hell bent on destroying the world economy.

or

A cyber attack meant to do the same thing.


This would completely explain why all this money was needed so quickly and so urgently.


This is and should be HEADLINE NEWS.

[Greyhound]

23. More likely a hedge fund or funds making a play. They have the tech, the funds,

and nobody is watching them.

[seemslikeadream]

16. and folks dismissed the Marshall Law thing

anyone who thinks Marshall Law would not have been enforced when that happened is kidding themselves




http://www.youtube.com/watch?v=yzF0W7-1CCc

[anonymous171]

17. That probably would have been a good thing considering everything

would be collapsing.

[seemslikeadream]

24. Well there would have been no other choice

lots of folks here dismissed that threat but it was real and now we have proof

[HamdenRice]

37. BE CAREFUL THERE!!1!1

Or the grey one will correct your spelling!

:hi:

Don't you think DU is a little schizophrenic? Those of us who were writing about this in the fall were called shills and fools for disseminating "Bush scare tactics". Now that a Congressman has said repeated old news, it's all true.

[seemslikeadream]

43. Can't condemn a girl for trying

oh how I miss his crap, you'd think I did stuff on purpose to get him to notice me

[AllexxisF1]

18. WOW

This seriously needs to be looked at from the press.

[terisan]

19. Q & S: where is our official report on the electronic run on the banking system ?

and Suggestion: "end of our economic system and political system as we know it" is a broad emotional statement without any pertinent factual detail.

What exactly would have happened if nothing was done to save the private banking system and we concentrated on rebuilding a better system?

and what were the alternatives to just pouring in some billions and hoping for the best outcome?

what are the current safeguards?

who or what initiated the run on the banks?

[amborin]

20. the immediate big boo boo was lettting Lehman collapse

of course, in the context of the bubble bursting....

but letting Lehman collapse was a big mistake

[Greyhound]

22. K&R #5, welcome ot the greatest page.

There are a couple of other threads floating around on this. It is all a confidence game.

[HamdenRice]

25. This was no secret. A lot of us were SCREAMING/blogging about this in real time

It was a genuine run on money market funds as a result of Lehman collapsing and money market funds "breaking the buck." In Manhattan people started panic withdrawing from all money markets and there were bank run-like lines at certain institutions.

Commercial paper (which iswhat money market funds invest in, and funds hundreds of thousands of companies) could not be sold for several days, as reported on NPR's This American Life.

During those same days, inter-bank lending came to a virtual standstill. The country really did face a complete meltdown.

I wrote on September 18 about how we were days, or maybe hours, away from not being able to cash paychecks or use ATMs.

A radical economist on Democracy Now said we were close to having to use gold coins to buy groceries.

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

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

[DemReadingDU]

30. If in the future, there is a 'bank holiday'

This is where the banks are shut down temporarily(?). I assume the only viable form of payment during this holiday, would be cash dollars. There would be no automatic deposits, no automatic payments, no ATM withdrawals, no credit card purchases, no electronic banking. Banking would literally be shut down, frozen. Does anyone else see this occurring?

Or do you think paychecks and social security checks would still be automatically deposited? And would my bills still be automatically deducted for the utility company, the cable company, etc.

In this age of electronics, what would happen during a 'bank holiday'?
Maybe no one has thought about this?


edit spelling

[HamdenRice]

36. Here's what I think almost happened

You are right that if things had continued on September 18, and a collapse had occurred, the federal government would have had to declare a bank holiday. But remember -- this was before the election, and George Bush was president, and he didn't give a shit already and was measuring the drapes for his house in Midland, Texas, so we might not have had a bank holiday.

There were two distinct but equally catastrophic things happening at once: a run on money markets and corresponding freeze of commercial paper; and a freeze of inter bank lending.

At least at first, before any bank holiday, you might have been able to take money out of your bank, but you would not have been able to do any transaction that involved 2 banks. So if your employer's paycheck was from bank 1 and your account was bank 2, bank 2 would not have accepted that paycheck (because inter-bank clearing was dead).

Same with utilities. You could not have paid your utility bill. But more to the point, the utility itself could not have paid for gas/coal, so it would not have mattered. The power would have been shut off at the generating stations.

With the commercial paper market gone, and bank accounts frozen, there would have been mass layoffs. Obviously the economy has lost several million jobs since September 2008, many hundreds of thousands per month. But if the banking collapse and commercial paper collapse had happened, since almost no employers would have been able to pay (ie use their accounts), everyone would have been laid off right away. That is to say, the several million people who were laid off between September and this February would have been laid off in the week after September 18, plus many million more. If you can't write a paycheck, you can't keep people around.

As for buying groceries with cash, those who had cash on hand could have bought food. The rest would have to draw down on what's in the closet -- of course, what's in the fridge would have spoiled in a few days with no power. Because grocery stores need to pay suppliers through bank accounts, within a week or so the store shelves would have been empty and the stores would have sent home their employees and closed anyway.

[DemReadingDU]

40. I still see some kind of a collapse

Just like you are describing. Probably sooner, rather than later.

:scared:


edit:
What about the government? Would it have shut down too? Would the gov still send SS checks to banks? or mail physical checks?

I have a small generator, but it takes gas to run it. I suppose deliveries would not be made to the gas stations; hence, no gas to run my generator.
Ugh.

[Hannah Bell]

32. & when they electronically moved the funds, where were they going to move them TO?

scam.

[dmr]

38. That September thread was very educational

It's very hard to wrap my head around any of this. I appreciate the efforts you have taken to educate us.

I'd like to ask you a question.

If paper money collapses, the gold Americans have in their jewelry could be bartered for goods. There are many ads on television, and even in the newspaper, selling to people the idea to cash in their gold jewelry (and lately, silver, too). These ads trouble me.

I've wondered who exactly are these people behind these ads. It's an ingenious way to slyly collect gold! I've sometimes wondered if it secretly originated from our government, or another government to take gold out of the hands of every day Americans and out of the country.

Do you have any thoughts?

[HamdenRice]

41. It is scary.

The local liberal tabloid in NYC, Newsday, says that lots of people are selling their gold and jewelry. This is a lot like Russia, circa 1989.

The gold buying companies on tv are basically speculators. They buy gold at very low prices, ripping off people who trustfully send their gold to them. I'm not sure whether they actually want to melt it down or resell it as used jewelry, but they clearly are betting that gold will be important or at least rise in price.

I don't see much chance of a gold economy, but I could see that if worse comes to worse, in the same way that Argentina "dollarized," the US could become "Euro-ized" or "Jen-ized" with merchants preferring some other more stable currency. Here in New York, around 14th Street (low cost tourist shopping Mecca), the merchants are already posting prices in Euros.

Ironically, as a result of the crisis international savers actually are fleeing to US t-bills which is actually propping up the dollar, so I don't see the dollar crashing in the short term.

[Junkdrawer]

34. So, if we cancel the Stimulus and give ALL the money to the banks...

will they make sure my ATM card works?

:sarcasm:

[progressoid]

35. Gonna watch "INSIDE THE MELTDOWN" on Frontline

And my blood pressure will go through the roof!

http://www.pbs.org/wgbh/pages/frontline/

[DemReadingDU]

42. Marking my calendar, thanks!

[jazzjunkysue]

44. I'm really freaking out. Part of me wants to move to a log cabin in canada

and collect my own rainwater and trap animals and grow vegetables. Honestly! But I lack the skills.

Sometimes I think those survivalists in the woods with sticks on their hats are the only sane ones.

I keep hoping this is a wierd star trek episode and I'm going to wake up any minute.

[DemReadingDU]

45. Discussed on Keith Olbermann

2/10/09
http://video.msn.com/video.aspx?mkt=en-US&brand=msnbc&vid=50219fb2-115d-4810-a6aa-69dc89a54263