Join Early Retirement Today
Reply
 
Thread Tools Display Modes
What really precipitated the financial crisis in Sept.?
Old 02-11-2009, 01:35 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Oct 2005
Posts: 4,898
What really precipitated the financial crisis in Sept.?

Finally someone talks about what really happened in the room when Paulson and Bernanke came to call on Congress on sept. 18. This is very enlightening and pretty scary too. Everything rolled out from this moment.
Daily Kos: State of the Nation
Zoocat is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-11-2009, 01:49 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
I heard that the other day. I wonder if this "run" may have been sparked by the Lehman failure.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 02-11-2009, 02:01 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
Lovely.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
Dawg52 is offline   Reply With Quote
Old 02-11-2009, 02:13 PM   #4
Moderator Emeritus
 
Join Date: May 2007
Posts: 12,894
I unfortunately probably participated in the "run". The deciding factor for me was hearing good old Richard Shelby and his possies suggest that the government should not intervene and just let the chips fall where they may after the failure of Lehman. In other words, if the economy's gotta collapse, just let it collapse. That guy scared the heck out of me and I knew he wasn't joking, so I immediately went to the bank and cashed in my emergency fund held in a money market fund. Oops!
FIREd is offline   Reply With Quote
Old 02-11-2009, 02:26 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Oct 2005
Posts: 4,898
I never understood exactly what people meant by the Lehman failure precipitating this financial crisis until I saw this video. Obviously, letting Lehman fail didn't cause it, but now that we know what happened at the "show down" in the closed room, it's pretty clear that a LOT of people panicked on Sept 18,as well as corporations, hedge funds, etc, etc. Not a pretty picture of our financial system.
Zoocat is offline   Reply With Quote
Old 02-11-2009, 02:28 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,483
Quote:
Originally Posted by Oldbabe View Post
Finally someone talks about what really happened in the room when Paulson and Bernanke came to call on Congress on sept. 18. This is very enlightening and pretty scary too. Everything rolled out from this moment.
Daily Kos: State of the Nation
I think they over-reacted.........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 02-11-2009, 02:36 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ls99's Avatar
 
Join Date: May 2008
Posts: 6,499
From the Ko's:" In a span of 2 hours, $550 billion was drawn out of money market accounts in an electronic run on the banks." Kanjorski alludes to 3 trillion total draw out possibility if...........

No discussions that I can find on the Who, and Why part. Absent that explanation the rest of the interview might as well be smoke and mirrors.
Guess I just don't understand economics, or high finance.
__________________
There must be moderation in everything, including moderation.
ls99 is offline   Reply With Quote
Old 02-11-2009, 02:43 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
Quote:
Originally Posted by ls99 View Post
From the Ko's:" In a span of 2 hours, $550 billion was drawn out of money market accounts in an electronic run on the banks." Kanjorski alludes to 3 trillion total draw out possibility if...........

No discussions that I can find on the Who, and Why part. Absent that explanation the rest of the interview might as well be smoke and mirrors.
Guess I just don't understand economics, or high finance.
I've heard some "who" and "why" speculation, but it's political in nature and possibly foilhattery.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 02-11-2009, 02:45 PM   #9
Full time employment: Posting here.
 
Join Date: Dec 2006
Posts: 886
Iceland!
__________________

Trek is offline   Reply With Quote
Old 02-11-2009, 02:52 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ls99's Avatar
 
Join Date: May 2008
Posts: 6,499
I think i got it:

There was this massive electronic withdrawal of funds....

The computers went berserk, started to move money out of money markets into the bit bucket (where everything disappears into nothingness).
Then when the fed announced that the guaranteed limit is $250000. Them computers obeying the master instruction, ground to a halt.

It is as good of an explanation as any other out there.
__________________
There must be moderation in everything, including moderation.
ls99 is offline   Reply With Quote
Revisions to the Community Reinvestment Act in the 90's by the Clinton Admin.
Old 02-11-2009, 03:27 PM   #11
Recycles dryer sheets
 
Join Date: Mar 2007
Posts: 121
Revisions to the Community Reinvestment Act in the 90's by the Clinton Admin.

Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[52] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[58] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[59] Jeffrey A. Miron, a senior lecturer in economics at Harvard University, in an opinion piece for CNN, calls for “getting rid” of Fannie Mae and Freddie Mac, as well as policies like the Community Reinvestment Act that “pressure banks into subprime lending
hogtied is offline   Reply With Quote
Old 02-11-2009, 03:43 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Oct 2005
Posts: 4,898
Quote:
Originally Posted by ls99 View Post
From the Ko's:" In a span of 2 hours, $550 billion was drawn out of money market accounts in an electronic run on the banks." Kanjorski alludes to 3 trillion total draw out possibility if...........

No discussions that I can find on the Who, and Why part. Absent that explanation the rest of the interview might as well be smoke and mirrors.
Guess I just don't understand economics, or high finance.
I find it very interesting that there has been no outcry to learn what was said by Paulson and Bernanke behind the closed doors on Sept 18 and only now 5 months later are some little hints trickling out, much less information on "who" and "why." Smoke and mirrors, yes. But what is being obscured?
Zoocat is offline   Reply With Quote
Old 02-11-2009, 03:54 PM   #13
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
When I heard that a MM had "broke the buck" I withdrew all my MM funds or transferred them to a bank account. I believe this was on the 18th. Letting Lehman go under was a mistake, wiping out the investors in FNMA was a mistake. I think we could have brought this down in a controlled fashion had politics not intervened setting off panic.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 02-11-2009, 04:28 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
Quote:
Originally Posted by Bikerdude View Post
I think we could have brought this down in a controlled fashion had politics not intervened setting off panic.
Unfortunately, happening seven weeks before a presidential election, that option wasn't on the table.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 02-11-2009, 06:59 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by Bikerdude View Post
When I heard that a MM had "broke the buck" I withdrew all my MM funds or transferred them to a bank account.
This is exactly the "who" and the "why" of it.

In September the equity & bond markets were already rife with panic and uncertainty. But then Lehman's bankruptcy caused the Primary Reserve money market fund to break the bunk which in turn caused a mass exodus from money market funds (see Bikerdude). Money market funds started puking commercial paper to meet redemptions causing the commercial paper market to shut down. Without access to the CP markets, short-term corporate liquidity for things like payroll and inventories was drying up. Corporations started drawing down on their revolving bank lines defensively, putting futher pressure on bank liquidity, which was already under assault . . . .

This was a classic run on the bank scenario. But in this instance it was cascading through the entire economy. Things were dangerously close to falling apart in ways that are absolutely terrifying. Paulson & Bernanke improvised a bunch of programs that prevented a bad situation from spiraling into an absolute catastrophe . . . about that I have zero question.
Gone4Good is offline   Reply With Quote
Old 02-11-2009, 07:02 PM   #16
Gone but not forgotten
Khan's Avatar
 
Join Date: Aug 2006
Posts: 6,924
Send a message via AIM to Khan
Quote:
Originally Posted by Oldbabe View Post
I never understood exactly what people meant by the Lehman failure precipitating this financial crisis until I saw this video. Obviously, letting Lehman fail didn't cause it, but now that we know what happened at the "show down" in the closed room, it's pretty clear that a LOT of people panicked on Sept 18,as well as corporations, hedge funds, etc, etc. Not a pretty picture of our financial system.
What's funny about this (to me anyway) was I was without electricity from Sept 14 - 20, and had no idea what was going on.
__________________
"Knowin' no one nowhere's gonna miss us when we're gone..."
Khan is offline   Reply With Quote
Old 02-11-2009, 07:03 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
What precipitated the crisis? (yes, the MM fund run was caused by the Lehman failure)

The short version - letting Lehman go bankrupt.
The long version - SEC in 2004 loosening the rules and letting investment banks lever themselves as much as 40X

If it hadn't been for the excessive leverage, there would have been a lot of financial pain in 2007 due to the housing bubble,MBSs etc., but no "systematic failure".

Audrey

What precipitated the crisis? (yes, the MM fund run was caused by the Lehman failure)

The short version - letting Lehman go bankrupt.
The long version - SEC in 2004 loosening the rules and letting investment banks lever themselves as much as 40X

If it hadn't been for the excessive leverage, there would have been a lot of financial pain in 2007 due to the housing bubble,MBSs etc., but no "systematic failure".

Audrey

P.S. The Lehman failure DID precipitate the run on MM funds. Two MM funds immediately broke the buck because of holding Lehman securities, and once this became known, the run started. Also, the Lehman failure put several Hedge funds in the position of not being able to get to their cash.
audreyh1 is offline   Reply With Quote
Old 02-11-2009, 07:23 PM   #18
Full time employment: Posting here.
dessert's Avatar
 
Join Date: Jan 2007
Location: Southern Louisiana
Posts: 519
As I read this I relate it back to the 20's where a "run on the bank" could be seen by long lines in front of the brick and mortar institution. It was easy to simply close the doors to prevent further damage.

In this computer society where everyone has instant information and a high speed internet connection to their funds, only certain people would ever know about a run on the banks and this looks like what went on.
It is kind of disturbing.

Of course this might be against my policy of "not believing everything I read on the internet".
dessert is offline   Reply With Quote
Old 02-11-2009, 07:41 PM   #19
Full time employment: Posting here.
racy's Avatar
 
Join Date: May 2007
Posts: 881
What precipitated the crisis?
(1) Government meddling in mortgage markets: homes for everyone! It doesn't matter if you can't afford one.
(2) Government/SEC not providing oversight & not keeping up with 21st century financial instruments, ie credit default swaps (sold as insurance but not regulated as such).
(3) Government/Fed/Greenspan's easy money policies leading to housing bubble.

But, don't worry. Government has a plan.........................
__________________
"It is better to have a permanent income than to be fascinating". Oscar Wilde
racy is offline   Reply With Quote
Old 02-11-2009, 07:46 PM   #20
Recycles dryer sheets
 
Join Date: Jan 2009
Posts: 170
Quote:
Originally Posted by ziggy29 View Post
I heard that the other day. I wonder if this "run" may have been sparked by the Lehman failure.
Rumor is Chavez (Venezuela) had $300B sitting at Lehman Brothers and that is why it was allowed to fail.

Venezuela Faces Loss on Lehman - WSJ.com
Gpond is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retiree Poll on The Financial Crisis chinaco Life after FIRE 50 12-16-2008 11:11 AM
The Financial Crisis -- The Aftermath chinaco FIRE and Money 30 10-29-2008 08:31 AM
Financial crisis effect on muni bonds mark500 FIRE and Money 4 09-23-2008 08:31 PM

» Quick Links

 
All times are GMT -6. The time now is 11:13 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.