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Sept 18, 2008
Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.
“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.
When Mr. Schumer described the meeting as “somber,” Mr. (Chris)Dodd (D-CT) cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”
What made everyone so somber?
Beginning at 2:10...
"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 the tune of $550 billion was being drawn out in a matter of an hour or two. The Treasury opened up its window to help. It pumped $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 was that by two o'clock that afternoon, five-and-a-half trillion dollars 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. It would have been the end of our economic system and our political system as we know it."
Quite a statement.
Is Kanjorski correct?
On the day Kanjorski refers to.....this is what the Fed did....
On September 18, the Federal Reserve pumped another $105 billion into the banking system. Link
The Fed added a record daily total of $105 billion in temporary reserves into U.S. money markets, while the European Central Bank injected an extra €25 billion ($35.88 billion) in one-day funds. Link
Money market funds WERE under pressure.....
The Reserve Primary Fund, the oldest in the U.S., lost more than 60 percent of its assets to redemptions this week. (The week of Sept. 18th)
Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund yesterday and said it plans to return all cash to investors. The fund, which was valued yesterday at $1 a share, experienced ``significant redemption pressure,'' the Boston-based company said today in a statement.
Money-market funds are among the biggest buyers of commercial paper. Investors pulled $80.7 billion from taxable money-market funds in the week ended Sept. 16. Link
Kanjorski said $550 billion was taken out of money market funds. That does seem exaggerated if Bloomberg's report of $80.7 billion coming out that week, is correct. I'm still trying to reconcile those two numbers.
Also on Sept 18, 2008...
The Treasury Department announced that, at least temporarily, it would guarantee money market funds against losses up to $50 billion.
“For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund — both retail and institutional — that pays a fee to participate in the program,” the Treasury said in a statement. Link
October 1st, 2008.....Senate passed TARP 74-25
October 3rd, 2008.....House passed TARP with 108 of 199 GOP representatives voting no....54% against. Dems voted for the bill by 172-63 margin.....73% for.
January 15th, 2009....Senate voted to release the second half of the TARP funds.
Six Republicans joined with 45 Democrats and one Joe Lieberman to defeat a resolution that would have blocked the release of $350 billion in financial-industry bailout funds... Link
Senators who supported the first TARP disbursement in October but opposed the second include Bayh(D-IN), Kit Bond (R-Mo.), Richard Burr (R-N.C.), Saxby Chambliss (R-Ga.), Tom Coburn (R-Okla.), Susan Collins (R-Maine), Bob Corker (R-Tenn.), John Cornyn (R-Texas), John Ensign (R-Nev.), Lindsey Graham (R-S.C.), Chuck Grassley (R-Iowa), Kay Bailey Hutchison (R-Texas), Johnny Isakson (R-Ga.), Lincoln, Mel Martinez (R-Fla.), McCain, McConnell, Lisa Murkowski (R-Alaska), Ben Nelson, Arlen Specter (R-Pa.) and John Thune (R-S.D.).
Changing their minds from opposing the first TARP disbursement in October but supporting the second on Thursday were Sens. Tim Johnson (D-S.D.), Mary Landrieu (D-La.), Bill Nelson (D-Fla.) and Debbie Stabenow (D-Mich.). Link
Draw your own conclusions. At a minimum, the TARP vote to release the second half of the funds, with GOP senators seeking to block the release.....puts the GOP senate stimulus/recovery vote in perspective.
I'm as cynical as anyone, but it does appear that America really was hanging by a thread in September, 2008. It appears that we were an eyelash away from the end of the United States as we have known it. Bush and Paulson, at the very least, deserve credit for not turning a blind eye last September.