So I was passing this around to people yesterday and figured I would post it here. The juicy stuff starts at about two minutes and twenty seconds:
Transcript:
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.
So basically if the "free market" had anything to say about it, our economic system would be in utter ruin worldwide because of a massive bank run. Congratulations Fed, you saved us from a far, far worse fate.
Podcast interview on Butter No Parsnips
6 months ago
3 comments:
I think you're tying the Fed too much in with the government in this case. The cause of this crisis, in root, was the fault of the private banking institutions and the "bundles" of assets they would trade with one another and the big governmental mortgage companies (Fannie/Freddie). The Fed, however, has very limited control over these monetary tools. They control return rates on T-bills, the money supply, the FDIC, etc. The Fed is preferable, in my opinion, to anything that's not complete nationalization of the banks.
And in calling this kind of language alarmist, are you arguing that an over five trillion dollar loss of liquidity would not affect the economic well being of the United States in a serious way? This is over a third of the gross national product of the US. It's a vicious circle; once people realize the United States may not be able to back up treasury bills, they remove their own funds, causing an even further problem.
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