In recent days some misinformation was widely circulated on the ‘tubes, (including this blog) regarding the circumstances of the banking system crisis last fall. The information in question is the video clip of Congressman Kanjorski claiming that there was a two hour $550 billion drawdown in money market funds last fall, and that the global economic system was within 24 hours of complete collapse. This meme has been used as justification for Congress abrogating their responsibility to carefully consider and debate how our money is raised, allocated and spent without adequate oversight. Oh… and also for some gratuitous bashing of free markets. Justin’s takeaway:
“For those of you who didn’t realize how dire the situation was (even though I implored you to take it seriously) I hope this video will make it crystal. If our banking system failed and it set off a chain reaction around the world, our credibility would have been TOAST… Letting the market work would have literally resulted in almost a complete unraveling of our way of life. Imagine if you had woken up the next day and discovered that your debit card, your credit cards… none of them worked. It would have been catastrophic.”
I thought the story was a bit fishy at the time. Why is it that the only source was one Congressman in an obscure video clip? Where was the substantiation from… well… anyplace else? How is that anything so big and dire could take place last September, and nothing leak out about it until now? My suspicion was correct.
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 24, Kanjorski held a hearing on Capitol Hill with Treasury secretary Hank Paulson… 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…
…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.”
So Kanjorski “misremembered” his sources as he retells the story over time, and bad reporting from the New York Post is given new life on the Intertubes.
That was a bad week for the financial sector. But there was no retail panic in money markets, no $550B drawdown in a couple of hours and the world wide financial system was not 24 hours from collapse. Good story though. Kanjorksi enjoys telling it.
There are still questions and lessons to be learned. My question: To what extent did the Treasury Secretary and the executive branch permit misinformation and fear to be used to panic the Congress into abrogating their responsibilities to the American taxpayer and pass a very bad bill with very little consideration?
I don’t think this story is done.