The Near Economic Collapse Of 2008 UPDATE: Or Not!!!!

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[Note: If you read this, be sure to go to the update at the bottom of the post.]

September 18th is both my Mom’s and Little Brother’s birthday. On Sept. 18th of last year, it is also the day the world financial system nearly crashed.

For the first time since they past the $700 Billion TARP relief package, someone actually explains why everyone was in such a panic. They had good reason to be. We came this close to a total, worldwide collapse of the financial system. During this time period Lehman Brother’s had gone under, B of A purchase an ailing Meryl Lynch, and insurance giant AIG revealed they were in the midsts of a liquidity crisis. That was what we saw and heard in the news. There was an aspect to this that was kept quiet… on September 18th, around 11AM, the feds realized there was a run on the money market funds, at a rate of $270 billion in a matter of two hours. Without immediate action, it was estimated that the loses would have been around $5.5 Trillion, which would have bankrupted the United States and world financial system. They halted trading, issued a $250 federal guarantee on money market accounts, which stopped the financial bleeding.

A lot of people are ticked because the money that was supposed to be used to by the toxic loans (and they aren’t all mortgage btw) are instead now being used to prop up the banks. Turns out there is a good reason. The toxic assets, as it turns out are much much more toxic than originally estimated. To get them off the books would have cost over FIVE TRILLION DOLLARS. Realizing there was no way in hell to that the United States could raise that kind of capital, Paulson and Co. decided to simply prop up the banks instead. Of course, they didn’t think that the banks would turn around and waste some of that money, but they should have added more restrictions on the bail-outs. Here is a video of Penn Congressman Paul Kanjorski explaining what happened last September.

It’s no wonder everyone was panicked and white as a sheet on capital hill. I still think things are going to get much worse before they get better, but in the end, if this is an accurate accounting of the crisis, Paulson and Co. will be looked at in a favorable light.

Hat Tip: Sully.

UPDATE: This blogpost may be the result of Sen. Kanjorski’s vivid imagination, or an agenda to justify his vote for the first financial bali-out. Either way, it looks like it may be false! If it turns out to be the case. the Bush administration has even more to answer for, as the first TARP bail-out has begot the newer, even more ridiculous Obama / Reid / Pelosi pork-laden $1.1 trillion feeding frenzy.