Then I saw the video of Representative Paul Kanjorski, a Democrat from Pennsylvania, talking about the events that led up to Paulson's histrionics (below). It made me think twice about just how bad things might really have been. Kanjorski said of the day that Paulson visited congress with his dark news:
On Thursday, at about eleven 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 being drawn out in a matter of an hour or two ... We were having an electronic run on the banks. They decided to ... close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic ... 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.Why didn't Paulson tell us about this activity then? Well, obviously because it probably would've scared investors even worse than they already were right in the middle of what turns out was a significant run on the investment banks. But what were these people thinking? Didn't they realize that money market funds don't evaporate in value like the bank securities were doing and that their investment accounts were insured by the feds in the event of a bankruptcy like Lehman Brothers?
Apparently, they didn't. Just watch this video, listening up sharp at 2:10 in, to hear a little told story about what was happening during those days:
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