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The $500B ‘Run On Banks’ Didn’t Happen

From Condé Nast’s Portfolio:

Kanjorski and the Money Market Funds: The Facts

With the Kanjorski Meme still spreading (see Ben Smith, Andrew Leonard, Moldbug, and more), I think I’m finally able to squash it with some hard figures: there never was a $500 billion outflow from any asset class in the space of a couple of hours or even weeks, and the Fed never shut down or froze any money-market accounts.

This is not the first time that Kanjorski has made these allegations. But first, it’s worth going through the timeline.

On September 15, Lehman Brothers failed. The Reserve fund — which was $64 billion that morning, and which had a substantial investment in Lehman debt — saw $10 billion of withdrawals that day. The following day, September 16, it saw another $10 billion of withdrawals; on September 17, when withdrawals had reached a total of about $40 billion, it announced that redemptions would take "as long as seven days"; as we all know, that was massively overoptimistic.

The news from The Reserve was gruesome, and total withdrawals from money-market funds reached $104 billion that day, according to Crane Data. Another data provider, ICI, says that as of the close of business on the 17th, money-market funds had a total of $3,549.3 billion, which was a fall of just $30.3 billion from their level a week previously.

The following day, September 18, was bad but not quite as bad, with withdrawals of $57 billion, according to Crane Data. By the 24th, according to ICI, the total was $3,456.2 billion — a drop of another $93.1 billion from the 17th.

On September 19, worried about outflows from money-market funds, the Treasury announced that, for a fee, it would guarantee — not freeze — eligible money-market mutual funds. But the details of the plan still weren’t clear as of September 21, when Treasury said it was "continuing to develop the specific details surrounding the temporary guaranty program".

Substantially all of the outflows came from institutional accounts: retail investors never panicked. If you look at the weekly data for bank savings deposits, including money market deposit accounts, they stood at $3,167.4 billion on the 15th, and rose to $3,191.4 billion on the 22nd.

So where does the $500 billion outflow number come from? Would you believe: the Sunday New York Post, which on September 21 published a story headlined "Almost Armageddon" featuring this paragraph:

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening [on Thursday]. The total money-market capitalization was roughly $4 trillion that morning.

Remember where we’re at here: the end of the longest week in financial-market history, when no one — traders, reporters, Congressmen, you name it — was getting much if any sleep. Simple errors can easily be made, numbers can get fuzzy, everything was moving very fast and confusingly.

In any case, three days later, on September 24, Kanjorski held a hearing on Capitol Hill with Treasury secretary Hank Paulson. Here’s what he said:

I was talking to someone, one of my friends on Wall Street today, asking him to verify the money market run. It was anonymously reported in some of the New York papers, and I think I have evidence of it in some of our conversations, whether it was with you or with other experts, that between 11:00 and 11:30 on Thursday last, the money markets in the United States were hit by a run that amounted to about $500 billion of $4 trillion in accounts and that as I understand it, it was essential for the Federal Reserve to pump $105 billion into the system and to suspend operations or the money market accounts of the country would have, in fact, failed.
One, you should tell us that.

Kanjorski is clearly fishing here: he’s talking about anonymous newspaper reports and vague "conversations" and anonymous Wall Street "friends", and basically asking Paulson to confirm his suspicions. Which, naturally, Paulson doesn’t do, because the suspicions weren’t actually true. That said, however, Paulson’s being-polite-to-the-Congressman answer doesn’t explicitly say that Kanjorski’s numbers are false.

After that, we didn’t here much more about this meme until Kanjorski resuscitated it on C-Span, this time citing the Federal Reserve as his data source, and beefing up the numbers for good measure:

On Thursday at about 11 o’clock in the morning the Federal Reserve noticed a tremendous drawdown of, uh, money market accounts in the United States to the tune of $550-billion was being drawn out in in a matter of an hour or two…

We were having an electronic run on the banks. They decided to close down the operation, to close down the money accounts. … If they had not done that, in their estimation, by 2 PM that afternoon $5.5-trillion would have been withdrawn and would have collapsed the U.S. economy and within 24 hours the world economy would have collapsed.

This is all, frankly, fiction, and it’s not clear where most of it came from, although maybe Kanjorski’s "friends" on Wall Street are the same people as Michael Gray’s sources at the New York Post. Thinking back to that crazy week it’s easy to get details wrong, especially when you’re speaking off the cuff on a call-in show. But let’s stop treating it as though there’s any substance to it. Please.

If you ask us, Mr. Salmon’s explanation could have been a little more clear.

But we tend to believe it.

Something as big as a $500 billion run on the banks could not have gone by unnoticed by everyone in the business.

Of course we would still like to know where Mr. Soros fits into the current financial crisis.

(Thanks to GetBackJack for the heads up.)

This article was posted by Steve Gilbert on Friday, February 13th, 2009. Comments are currently closed.

9 Responses to “The $500B ‘Run On Banks’ Didn’t Happen”

  1. Colonel1961

    OK, I admit it – I borrowed the $500B and went to Las Vegas. But, I did OK at the tables and put most of the money back, less a few mil for hookers and $3.99 all-you-can-eat buffets…

  2. proreason

    Sept 19, the day after the Money Market run we are now told didn’t happen, Henry Paulsen said this:

    “We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses. We’re talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem”

    Strange timing, huh?

    Must be another of those amazing coincidences. Like the fact that just two days prior to the run that didn’t happen, Barak Obama declared the following “most serious financial crisis in generations”, plus a lot of other garbage. But then, The Morons timing around disasters that just kinda seem to happen when he is running for office, has always been impeccable.

  3. GetBackJack

    Gee, it’s getting to where you can’t believe the news networks, our elected officials or even celebrities when they talk to us. I hardly know whom to trust anymore.

    Oh, yes I do.

    It all started with the lowliest of mangers far far away, on a lonely night, on the run from the government of that time …

  4. durak

    Kanjorski’s assertion that there was an electronic run on the banks is correct. His statement about a worldwide collapse of financial systems is also correct. The problem is that some of his details are not accurate. To sum it up:

    – The Lehman Brothers bankruptcy caused serious dislocations in the commercial paper market.

    – When the Reserve Primary Fund broke the buck, institutional money, large estates and foreign governments realized that their funds were no longer safe.

    – The 550 billion run happend prior to maket open. Orders were placed between 7am and 9am eastern time.

    – While these funds in theory could have covered the withdrawals, However in reality, they do not maintain enough liquidity to cover an event of this magnitude.

    – The Fed/Treasury realized that they could not inject enough liquidity to cover the withdrawals or at least turn the tide of panic. Thus, they announced that the ENTIRE value of money market funds would be covered. Kanjorski stated that the FDIC raised coverage to 250,000, which happend but not as a solution to this particular event. The players which placed these orders had accounts worth exponentially more than 250,000
    .
    – If these orders actually made it to maket at 9:30am any informed institutional players would have piled on because they know that the money market funds would not be able to cover such a withdrawal and panic would incite a cascade of firesale liquidations. The announcement of coverage happend about 9:15am and the on market open orders were withdrawn prior to 9:30am.

    So while several of the facts stated by Kanjorski were incorrect, the bottom line is that our financial system almost collapsed that day. To be honest, I was stunned to hear him spout even this much information.

    Here are some links for reference.

    http://www.bankrate.com/brm/ne.....ews_d1.asp
    http://www.treasury.gov/press/releases/hp1161.htm

    • proreason

      Interesting information, durak.

      If there WASN’T hanky panky in the Money Markets funds on Sept 18, why did the fed insure ALL mm funds Sept 19?

      Seems to fly in the face of Conde Nast’s revisionism, and support Kanjorski’s assertion.

      And as I posted a while back, Sept 19 was also the day Paulsen made his “we’re talking billions” comment.

      But of course, we know that facts are malleable in a liberals hands.

  5. proreason

    Financial crisis triggered by Soros manipulating China, according to this author.

    “The economic bubble was created over decades by selling out the producers in America for the sake of consumers. Consumers were able to buy cheap goods from China et al. Cheap mortgages were also indirectly a gift from the Chinese. Bloated generous government was nearly cost free.

    You have probably noticed that the bubble popped just in time for the election. This was probably not by chance. It took decades of creeping socialism in the US by a range of traitors and venal politicians to create the bubble, but it took some particularly devious machinations to pop it with such perfect timing.

    George Soros has been the master of economic hostage situations for decades. He made 1.1 billion pounds sterling by breaking the Bank of England on “Black Wednesday” in 1992. He has been accused with doing the same sort of trick with Thailand and Malaysia.

    There was a way to pop the bubble: He had to get the Chinese to stop playing along with the artificially low Yuan and stop investing in American debt. Soros had influence on a wide range of people in the American Left and he used them and the Olympics to deeply offend China. Tibet suddenly became the cause de jour, and a wide range of Democrats went on the attack.

    When Soros instigated Black Wednesday, it spelled the end of Thatcher’s Conservative control of Britain. Is it just a coincidence that this economic crash is so perfectly timed? It is more likely that the stimulation of the crash was timed to make money for Soros and place Obama in the presidency. Obama is more than a convenient beneficiary of Soros. Soros has coronated him as the one who will rule America and thus the world.

    http://dagnyd.net/Looting.htm

    Well, this makes four people who are willing to say the events of last September and October were not random chance. I’m anther one. SG and Rush have also openly expressed their suspicions.

    • Consilience

      I tend to agree…the realms of international finance are mysterious. The liberals have gutted US manufacturing capability with their crippling laws—we could do so much better without the bed-wetter anti-American leftists.

  6. sheehanjihad

    I know we are not supposed to wish ill on anyone in a position of power, especially politicians ,for the mainly because Bush isnt in office anymore, and thus, we are all supposed to support the president in our time of crisis. I personally learned a lot in the past 8 years of unending democrat and liberal support reading what was written about Bush, and what the media said about him too, so I am doing my best to act just like them with the new guy!!!!

    . Could be me, uh, but shouldnt someone take it upon themselves to render this Soros character incapable of the basics of life? Like breathing, or a heartbeat? Seems like he is the puppetmaster……someone needs to cut his strings of control. It would be a win win! He couldnt pull the strings to make the democrats and the left dance anymore….and without his strings, the democrats and the left would collapse in a heap of inanimate wooden wannabes…..just wondering if anyone has thought about eliminating the infected pus from the boil this country has become, and start to let it heal……..seriously, I am curious as to why no one has thought of it. I sure have!

    • proreason

      he hasn’t just destroyed the economy of the U.S. He also tried to do it to the U.K. and later to Malaysia.

      He deserves the ultimate punishment. one worse than death………imprisonment as a cell mate with drooling Barney Franks.




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