...does it make a sound? On Sept. 18, 2008, the banking system almost collapsed--no, really. A while back, I noted that there are at least two classes of media bias: one involves the interpretation of a set of agreed upon facts, while the other involves decisions as to what those facts are, or, even if something happened (an aside: while this was not controversial to the science-oriented commenters, this distinction is apparently beyond the ken of at least one journalism professor).
Anyway, this story, unearthed by C-SPAN, falls into the latter category (in the video, go to the 2:05 mark; transcript below video):
Transcript (italics mine):
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.
Holy shit.
I couldn't find a single story from that time that reported this. It's kinda important, I think.
And here's some extra bonus scary from the interview:
Ya know, we're not any geniuses in economics or finances... We're representatives of people. We ought to take our time, but let the people know this is a very difficult struggle.
Somebody threw us into the middle of the Atlantic Ocean without a life raft and we're trying to determine what's the closest shore and whether there's any chance in the world to swim that far. We. Don't. Know.
Zoiks.
One other thing: the Fed dumped $105 billion into the system in a few hours--and it had no effect. Basically, they lit this money on fire in the backyard for all the good it did. This should put the Blue Dog Democrats and Republicans who are cutting programs here and there in the Recovery and Reinvestment Act into proper perspective: it's really much ado about nothing.
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I don't remember the timing, but I did hear a discussion this item on NPR. That's not exactly mainstream media, but it was discussed.
And I almost crapped my pants while it was being discussed.
You know how in horror movies the president and the Joint Chiefs of Staff argue about whether or not to issue an alert, but decide not to because they want to prevent "widespread panic?" This may have been the case. The press didn't want to be responsible for a new run on the banks.
Okay - it's comparing real life to the movies; but sometimes the movies win.
$550 billion in just two hours?? My first reaction to this was, WTF? How can there possibly be enough Joe Consumers out there to draw down the Money Market business across the US in that short amount of time? That's like 1 out of every 10 people in the US withdrawing $20,000 within just one hour.
This sounded like some kind of "automated" action: perhaps some computer programs with similar or identical algorithms watching the market, and all triggering at the same time when some "bad thing" happened.
Two questions. First, has anyone done a study or modeling to see if the market volatility like this might be exacerbated by institutions and now individuals with access to the exact same (or closely similar) automated investment algorithms? When you take out any lag time or individual decision making, bad things might accelerate out of control. If one assumes something like this, it would be plausible that the Feb pumping money into the system wouldn't help, because the automated algorithms would not "know" to react to such an unexpected action in the market.
Second, wandering off in to paranoia black-helicopter land, could this actually be a coordinated effort, and not just an accidental confluence of similar computer programs? It's not as far fetched as you might think at first blush. Think Enron, and the manipulation of the California energy market. Everyone said it couldn't be done, but they figured out how to do it. I'm not saying that anyone intentionally caused the collapse, but things might have spun out of control when someone tried to manipulate the markets to their advantage. Think Bernard Madoff, as an example of one individual with an influence out of all proportion to their personal wealth. Think about the one "small" trader who last year brought down an international investment bank.
Just wondering.
Those were some scary days in the markets to be sure, but Kanjorski's reporting of events almost certainly contains major errors and exaggerations. Felix Salmon debunks the story here.
http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just…
uk version, around northern rock run time.
dailymail is retarded though.
It is shocking that the congressmen and women that are supporting the TARP bailout say they don't know when or if it will work but they have to do something. They have to do something with 1.2 trillion $ of our money. That doesn't sound like a business plan.