Friday, February 13, 2009

STOP THE PRESSES!! Democrat Congressman Lied!

(Photo: Kanjorski, right, with Barney Frank)

The $500 mil run-on-the-bank, sudden and unexplained, didn't happen. Democrat Representative Paul Kanjorski creatively wove together actual events to make his own compelling story - he lied.

On Wednesday, Feb. 11, I and many others reported a story concerning the sudden loss of $500 million from American money-market accounts and no one knew what had happened, or where the money went. The story seemed believable because the story was told by a congressman on C-Span and maybe, like Fox Mulder, because we wanted to believe.

House Capital Markets Subcommittee chairman Rep. Paul Kanjorski (D-PA) explained on C-Span:

Look, I was there when the Secretary [of the Treasury] and the Chairman of the Federal Reserve came in to meet with the members of Congress about what was going on. It was about September 15th.

Here's the facts, and we don't even talk about these things. On Thursday, at about 11:00 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 dollars was being drawn out in the matter of an hour or two.
It didn't happen. He lied. I'm shocked.

Felix Salmon, Conde Nast Portfolio writes (via Sweetness and Light):

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 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.

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.
Three days later, 9/24, Kanjorski held a Capital Hill meeting Treasury Secretary Hank Paulson. Kanjorski 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.
Read more with active links here.

There you have it. The Congressman's entire story is firmly ensconced in anonymity, ambiguities, and a-friend-of-a-friend-knows-somebody investigative prowess. We, I, should have known better than to believe the story. It was too good.

He's a Democrat politician for goodness sake! What were we I thinking!

The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.

1 comment:

suek said...

Thank you for following this up...
it's important that we get _all_ the facts, but also that we get "just" the facts!

"H'e's a Democrat politician for goodness sake! What were we/I thinking!"