Wednesday, February 17, 2010

The electronic run on banks nobody seemed to notice

By Mary Claire Kendall                          
Sixteen months after the 11 a.m. simultaneous withdrawal of billions of dollars out of money market accounts in the aftermath of Lehman’s demise a few days earlier, no one seems to care about the dimensions of this event.

After all, this catastrophic event did not have quite the physicality of say an actual bank run. 

George Bailey, played by Jimmy Stewart,
in It's A Wonderful Life (1946), confronting the run on
the Building and Loan, RKO Pictures
There were no investors standing in line waiting to take their money out for Americans to see just who they were—from what country, wearing what kind of clothes, honest or squirrelly looking, working in tandem with each other? Just computer generated orders simultaneously withdrawing billions of dollars adding up to $550 billion within about an hour.

And, certainly, if it were an act of economic terrorism, which no one seems to have the imagination or cojones to raise, the visual is not there. No Boeing 737 ramming into the Twin Towers, bursting into flames, innocent victims burning alive jumping out the windows to their death, prior to the buildings’ collapse into rubble.

But, make no mistake, this electronic run on the banks of Sept. 18, 2008, was every bit as catastrophic, with numerous victims.

Sure, it could be pure coincidence that exactly at 11 a.m. a wave of concerned investors all decided it was time to electronically withdraw their funds thus creating this crescendo drawdown effect setting in motion a worldwide panic.It could be coincidence. But, it’s doubtful.

The fact that the identities of those who simultaneously decided to withdraw their money at 11 a.m. on Sep. 18, precipitating this panic, were never released, does lead one to question whether or not something sinister was at work.

Is there no one else with even the vaguest curiosity to ask if it was a coincidence or not? And, to suggest maybe an investigation is in order to deliver that vaunted “transparency” that voters seemed to believe they would get after the 2008 elections.

If nothing sinister was at work, then why so much secrecy concerning the destination of this $550 billion in money withdrawn on Thursday, Sept. 18, and those responsible for redirecting these funds out of the U.S. money markets.

Surely the money didn’t go back into the American economy.

No, $550 billion was drained away from the American economy, the consequences of which we suffer to this day.

The exact contours of this event were described by Rep. Paul Kanjorski (D-Pa.) on C-SPAN on Wednesday, Feb. 11, the day before the 200th anniversary of Abe Lincoln’s birth.

An enraged caller had just erupted over the ill-advised $700 billion bailout a few months earlier and Rep. Kanjorski felt pressed to reveal what Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke had told Congress behind closed doors, which so shocked them into supporting this mind-bogglingly huge bailout.

“On Thursday [Sept. 18, 2008] at about 11 o’clock in the morning,” Kanjorski began, “the Federal Reserve noticed the tremendous drawdown 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. It pumped $105 billion in the system and quickly realized that they could not stem the tide.”

At that point, officials realized, Kanjorski relates, “We were having an electronic run on the banks.”

Depositors lining up outside the Building and
Loan in It's A Wonderful Life (1946), RKO Pictures

In response, Kanjorski continued, “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 and that’s what actually happened.”

And, if nothing had been done, Kanjorski revealed, “their estimation was that by two o’clock that afternoon, five and 1/2 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 (which would have meant) … the end of our economic system and our political system as we know it.”

Kanjorski concluded, “Someone threw us in the middle of the Atlantic Ocean without a life raft. And, we’re trying to determine which is the closest shore, and whether there’s any chance in the world to swim that far. We don’t know.”

But why is no one in the least bit curious to know who that “someone” is who “threw us in the middle of the Atlantic Ocean without a life raft”—the consequences of which have so damaged our economy’s job-creating engine?

This writer, for one, would like to know.

Mary Claire Kendall is a Washington-based journalist and screenwriter.

Originally published in The Daily Caller on January 15, 2010, after which it went viral on the Internet, posted at various sites including Free Republic and Defense of the Republic among many others.

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