The Bankwatch

Tracking the consumer evolution of financial services

Sep 18th 2008 | Russian Missile Crisis – banking crisis version

I heard the headline earlier today but only after listening to this video now do I appreciate the depth of this.  We know the Lehman Brothers collapse was serious but only now do we know to what extent.  This was the economic version of the Russian missile crisis.

It also explains for the first time, the awkward and otherwise inexplicable overnight shift in TARP approach by Paulson.

Listen to the comments at 2 minutes 20 seconds and from then on.  Kanjorski is the Chair of the Capital Markets Committee.  The key comments are:

  • “it was about September 15th [note his days and dates don’t match] ….  on Thursday at about 11 o’clock in the morning the federal reserve noticed a tremendous draw down of money market accounts in the United States to the tune of 550 billion dollars 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 realised they could not stem the tide  …  they realised there was an electronic run on the banks and we closed it down” .
  • They decided to close down the operation and announced a guarantee of $250,000 per account so there would not be further panic out there.  Thats what actually happened.  If they had not done that ………………. the estimate was that by 2 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 about what would have happened if that happened… the end of the economic and political system as we know it.
  • it would have taken 3  or 4 trillion to buy the bad bank assets, and UK came up with the idea of injection capital ….  we only had 750 billion … so we did that
  • it was much cheaper to put money in banks than buy bad assets

Written by Colin Henderson

February 12, 2009 at 00:00

6 Responses

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  1. Is there any third party verification of these facts yet?

    David Cesarini

    February 12, 2009 at 00:10

  2. Just the video, and he is a Congressman. However there is no separate confirmation as yet. Give it 24 hours … something/ someone will pop up. This is too big.

    Colin

    February 12, 2009 at 00:31

  3. Colin, this piece : http://baltimorechronicle.com/2009/021109Cherbonnier.shtml adds a different wrinkle to Rep. Kanjorski’s perspective.

    Sean Williams

    February 12, 2009 at 17:35

  4. Thank you Sean for that. The Baltimore Chronicle links out to the NYT etc on the value of Money Market Funds dropping below $1, and I recall that story at the time. Kanjorski though is speaking about 5 trillion being potentially pulled from the US which I believe is more that the MM Funds. Certainly is does sound like Kanjorski might be engaged in some type of revisionist history with his quotes nonetheless, because the story is not being picked up and analysed now – or is it really safe to assume that. The complexities of the markets are not generally well understood. I will keep rooting around.

    Colin

    February 13, 2009 at 11:15

  5. Global crisis as Russians see it
    The corridors in office buildings have either pluses or minuses. Let’s not speak about minuses but about pluses. Everybody knows each other; you can hear helloes, greetings, goodmornings.

    But the last few months silence dominates here.

    Crowds of clients just disappeared, nobody enters and asks:”Sorry, where can I find?..” , there are no more strangers smoking in common rest rooms, girls from nearby offices don’t rush in asking to change money for a change. The director of real estate office drooped off, you can’t hear scissors and hairdryers from a hairdressing salon, and women from the office you never could spell its name frequently hang “Closed for today” card. People drink a lot in the offices and it’s impossible to breathe in smoking areas. Visits of Santa and parties had been cancelled this year.
    http://ua-ru-news.blogspot.com/2009/02/global-crisis-as-russians-see-it.html

    Alex

    February 17, 2009 at 15:31

  6. […] Tracking the evolution of financial institutions? Sep 18th 2008 | Russian Missile Crisis – banking c… […]


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