Skip to comments.Rep. Kanjorski: $550 Billion Disappeared in “Electronic Run On the Banks”(11am,09/15(8?)/08)
Posted on 02/09/2009 10:54:52 PM PST by TigerLikesRooster
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(note: Sept 15, 2008 was Monday. He may have been refering to "Sept 18, 2008.")
"On Thursday Sept 15, 2008 at roughly 11 AM The Federal Reserve noticed a tremendous draw down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two.
Money was being removed electronically.
The treasury tried to help with $150 Billion.
But could not stem the tide.
It was an electronic run on the banks
The treasury intervened but had they not closed down the accounts they estimated that by 2 PM that afternoon. Within 3 hours. $5.5 Trillion would have been withdrawled and collapsed and within 24 hours the world economy."
I thought maybe some of it was orchestrated, still wonder, but the train wreck had already started some time B4 this so then I thought maybe managers of MM funds were getting out plus short sellers, so I don't know.
He goes on to characterize this as a “panic”, but who was panicking ? Was it a panic, or was it a concerted attack? This seems to be the unstated question here.
Many funds operate under the same financial premise and use software to do it. I wonder how much of this is automatic, as opposed to sinister?
OK, I’ll dial my tin hat to “neutral” ... + 0.1
were they removing their own money or was this a mass theft?
der fuhrer vill not be denied
The fact is that this little statement proves that whatever response the government comes up with - excepting staying neutral - will simply exacerbate the situation.
They are essentially admitting that they don’t control the financial levers anymore. The world market is so sophisticated and large that we are essentially back to a pre-Fed period where whipsaw responses to the market were much more common.
Had they not shut down the market they actually don’t know what would have happened. They were speculating. It was a real panic (automatic and electronic - maybe), but did shutting it down make it worse or better? What if the market had cleared on Monday?
As bad as the whipsaw could be (it would literally wipe out malinvestment), the market would clear as recognized value and moved in. Sadly, the “stimulus” just continues the hurt. Like getting surgery one cut and one day at a time.
We live in interesting times.
He said that the accounts were closed, and that they estimated that by 2 PM that afternoon, the US economy would have fallen. ...then the world, etc.
I thought this had been acknowledged since the early '90s. I remember some C-span type presentation I saw around then when some guy was explaining the explosion of the money market, how money had become a commodity in itself rather than representing other commodities. I suppose this has always been true in a way, but his point was the explosion in the amount of money, which seemed in some way to be breaking assumed boundaries.
You are right. It is just that the wizards still think the curtain is drawn.
OK, here’s what happened that precipitated these events.
A couple of money market funds “broke the buck” — owing to the collapse of Lehman Bros. The funds had been playing rather fast and loose with their credit quality standards, and the NAV of funds that held 10’s of billions in $$$ fell to a few cents below $1.00.
OK, so what was the big deal? With what was happening in that timeframe, no one knew anything for certain any more. Money market funds are “supposed to bore the investor into a good night’s sleep...” — and suddenly, this assumption was put to lie.
Suddenly, no one trusted ANYTHING any more. When money market funds can’t return your capital whole.... it is time to get out of “cash equivalents” and into real cash, or sovereign debt (which is as close to cash as one can get without having Brinks trucks show up at your front door...)
The result was this run on money market funds, which resulted in huge spreads on investment-grade short-term commercial paper as the funds sold out as well as the huge buying surge into T-bills (culminating in their eventual negative yields a couple weeks later).
The Dem's will never demand a Congressional investigation.
That the Dem's will never launch an investigation should tell everyone all they need to know about this crisis.
Sometimes panic over rides logic!
Part of the problem here is that the people in DC are simply not our best and brightest. They are, on the whole, the failures and dregs of society.
In these crisis situations, where high finance is involved, the people in DC are completely without a clue as to what is going on. They have no foundation, no framework of understanding with which to discern who is telling the truth, who is telling a lie and who is merely clueless - and as a result, they’re getting log-rolled by Wall Street.
Now, that’s the normal state of affairs. It has been that way since the founding of our nation.
What is different this time is that neither the Fed, nor regulatory agencies understand the markets they pretend to regulate or supervise. The derivatives markets especially have completely surpassed the understanding and comprehension of the people in DC. We might as well be carrying on a conversation about particle physics theories as discussing finance with these people. If we started talking about Schroedinger’s famous experiment with the cat in the box, they’d fixate on whether we were being cruel to the cat and get on the evening news to excoriate us for being cruel to cats with particle physics experiments.
They would completely miss the point of the “thought experiment.”
this sounds like a)financial terrorism or b)outside influences creating an election influence. why are we only hearing about this now? who did the withdrawing?
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