Rep. Kanjorski: $550 Billion Disappeared in "Electronic Run On the Banks"

[FarCenter]

"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."

Video clip is at http://www.liveleak.com/view?i=ca2_1234032281

[Demobrat]

1. This money didn't just disappear

It was moved out of MMFs - into what? FDIC insured bank accounts probably. So how does it follow that the world economy would have collapsed? The funds sure, but the world economy? This is fearmongering.

[tabatha]

3. Could have been out of the country.

I think he knows more than you.

[FarCenter]

4. The money market funds would not have been able to meet redemptions

There isn't cash sitting in Money Market Funds. The MMF invest the deposits in short term loans, CDs, commercial paper, treasury notes, various government notes, etc. in order to earn interest on the deposits. Typically these have maturities averaging about 45 days. Only a small percentage of deposits is kept in cash on deposit overnight.

So you are right that the $550 billion withdrawn didn't disappear -- it transfered to other accounts.

But if the flow out of MMFs had continued, they would not have been able to raise more cash to wire out. They would have had to stop allowing redemptions and/or given the depositors less than a $1 back for each $1 on deposit.

This would have spurred an even greater run on the MMFs, causing the collapse.

[ThomWV]

20. What would have been wrong with letting the worst Money Market Funds fail?

Just because some funds could not withstand withdrawals it doesn't mean that they all would have failed.

Honestly - if they had failed it would have been like a lightening strike to the economy but at least we have something to fix rather than this trillion dollar rampage of money tossing at what we hope is the broken part.

[On the Road]

7. I Don't Really Think That's Open to Debate

among serious economists. If what Kanjorski says is true, his conclusion was accurate. Not a shred of fearmongering.

In mid-September, banks were not only teetering on the edge of illiquidity, but of insolvency. Failed banks means the economy collapses. Period.

Banks are lending now. There are good rates to be had even though they being choosier on who gets to borrow money. That is helping to keep things going right now. One can hope that this is as bad as it gets, but the story isn't over yet.

[marketcrazy1]

8. !!!!

!!!

[tabatha]

2. Holy cow

I wonder who was behind it.

[FarCenter]

6. Hedge funds and other institutional depositors

From other stories, I don't think it was the retail customers of MMFs -- it was mainly their commercial customers.

And they are not all in the United States. A lot could have been foreign investors pulling money out.

[On the Road]

18. It *Had* to be Commercial Withdrawals

Probably over Lehman. Happened midday -- time frame is too short.

You can see the same pattern in stock and commodity markets -- sudden big moves are made by big players. Little guys follow, or even if they're ahead of the game the amounts are too small to drive the trend.

[drm604]

5. When there is an "electronic run on the banks" where is that money going?

You can't electronically transfer it into your mattress.

[FarCenter]

9. To any dollar denominated account in any financial institution in the world

The SWIFT network moves a few trillion dollars per day.

Moving $550 billion would be a blip, but not much of one.

There is no paper involved.

SWIFT (Society for Worldwide Interbank Financial Telecommunication)

[drm604]

11. So then how did it "disappear" as stated by the OP?

Please excuse my ignorance but if the money is just being moved around between banks then it's not really disappearing is it? Granted some individual banks could run into trouble if too much was moved out of them, but in the end don't you still have the same amount of money, just in different places?

[FarCenter]

13. Money invested in Money Market Funds is mostly not in banks

It is mostly in short term paper. Review the investments listed in your MMF's prospectus to see what kinds of investments they are making.

I think that "disappeared" was in the sense that it disappeared from MMF accounts.

September 15 was the morning that Lehman went bankrupt. So if a MMF had short term paper from Lehman, that money actually did disappear.

[dkf]

10. Wasn't Sept 15, 2008 a Monday?

[FarCenter]

12. Yes, the Monday that Lehman filed for bankruptcy

[dkf]

15. So when the article says Thursday Sept 15 did they mean the 18th?

Or did they mean Monday Sept 15th?

[bananas]

16. or Thursday Sept 11th?

:tinfoilhat:

[slipslidingaway]

14. More discussion in the Economy forum thread...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=56391&mesg_id=56391

[xiamiam]

17. electronic?..easily traced?..none of my friends made electronic withdrawals or transfers

i know that without even asking them..why dont i understand the part about who?..how many? is responsible for this particular event?????...did they have a little tea party and say hey..lets go screw the world?

[Demobrat]

19. I did.

Electronically transferred MMF savings into two different FDIC insured bank accounts. Apparently I wasn't alone.

[ljm2002]

21. This is just rich...

...we have vast amounts of "wealth" that live in the bits and bytes of computer systems, just ripe for runs on the banks like we've never seen before. At the same time, we have cutthroat financiers and hired-hand mathematicians who are adept at creating ways to game the system. And we have leveraged amounts changing hands that are thousands of times any actual real value out there.

All of this is manipulated just so that a few can get filthy rich, and the many continue to slide downhill trying to play a game that is not only rigged, but tilting at a 90-degree angle. Only thing is, at that point, the only motion left for it is down, down, down with all hands.

But the fat cats don't give a damn, they think they won't go down with it. Or maybe they're planning to use the bloated bodies of those in steerage as flotation devices.

At what point do we all look at this absurd system and say, not only NO but HELL NO! Why continue to pour trillions of (so-called) dollars to bail out a system that is bankrupt not only in the standard economic sense, but in the theoretical and moral senses as well?