On February 9, Magnifico wrote an eye-popping diary on dailyKos, USA was 3 hrs away from Economic, Political Collapse in September 2008 . That diary was on dKos’s Recommended Diaries list, and attracted more than 1000 comments. The diary was based on a video of Rep. Paul Kanjorski (D) (PA-11) of his Jan. 27 appearance on C-SPAN’s morning Washington Journal program. Magnifico provides a partial transcript, that described a supercharged run on Money Market accounts on September 18. The same video was a centerpiece of Keith Olberman’s Tuesday show this week, and has been written about elsewhere (e.g. here).

The basic facts are not in dispute. From Magnifico’s transcript:

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.


Next comes Kanjorski’s interpretation:

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.

Kanjorski is a member of a House Capital Markets, Insurance and Government-Sponsored Enterprises Subcommittee. He’s been trying to talk this up since a Sept. 24 House committee hearing, but "almost no one noticed except for the New York Post and The Wall Street Journal," wrote Borys Krawczeniuk of the Scranton Times-Tribune.

Magnifico quotes additional details provided by TMFSinchiruna in a blog post at The Motley Fool:

Fools who read my blogs regularly know I have been fascinated by what may have been included within the dire warnings issued to members of Congress by Paulson and Bernanke behind closed doors on Thursday, September 18, 2008…
Representative Sherman later revealed that members were warned that Martial Law would result if the $700 bailout plan was not passed, and Iguadland10 posted another video ascribing that particular warning to Paulson.
The New York Times quoted Senator Dodd as jumping in when Charles Schumer described the meeting as ‘somber’: “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

Please follow the links and read the details.

"…the end of our economic system and our political system as we know it"? Martial law? Isn’t this the kind of thing Naomi Klein warned us about in the Shock Doctrine?

Well, I think this incident needs further investigation. And one of my questions is this: Who was behind the $550 billion being drawn out of money market accounts in a matter of an hour or two? Kanjorski described it as an “electronic bank run,” but I wonder. I’d like to see records of just how it started, and by who. Money market funds are usually not subject to runs– who would be looking for MM collapse?

Furthermore, who was it in the Federal Reserve who decided to shut down the withdrawals and upped the maximum insured amount for bank accounts to $250,000? Paulson and Bernanke? Whoever it was, his/her/their quick action may have foiled the financial shock plot, if there was one. Or did Paulson & Bernanke merely use the incident to extort $700 Billion from Congress?

This incident needs a lot more investigation, IMHO.

Bob in HI