I reported last week that America had a huge draw-down of its money market accounts - based on U.S. Representative Paul Kanjorski's (D-PA-11th) appearance on C-SPAN. I believe Kanjorski's comments on C-SPAN were false. Photos and video below.
It appears we DID NOT have a draw-down in the manner that we took Kanjorski's words to mean. Kanjorski's original tape is below and the transcript is linked below if you haven't a clue what I'm talking about. First, I found a piece today by Felix Salmon, Portfolio.com Market Movers. He believes "there never was a $500 billion outflow from any asset class in the space of a couple of hours or even weeks. He takes it day-by-day and covers the entire financial scene in the days surrounding the events we have come to know as our "financial crisis," or "banking crisis." Then I visited Pat Dollard to see what he was saying about this, as he has been "hot on it," attempting to fit the pieces together from the words of U.S. Representative Paul Kanjorski. Remember, a U.S. Representative, who it appears was only throwing up a smoke screen, probably to protect his miserable record on the House Capital Markets Committee, also said:
If, Kanjorski says, they had not taken this action [Treasury shutting down money markets], they estimate that $5.5 TRILLION dollars would have disappeared from the money market system in the U.S. - and collapsed the entire economy of the U.S....and within 24 hours the world economy would have collapsed." "It would have been the end of our political system and our economic systems as we know it."The stuff of nightmares - and this man has a key to Capitol Hill! Dollard had the Profile.com article and one more from the Baltimore Chronicle, which is the one I'll use here to discuss. Thank you Pat Dollard. The Baltimore Chronicle by Alice Cherbonnier This video clip from C-Span's "Washington Journal" (Feb. 6, 2009) was captured and posted on YouTube. In it, Rep. Paul Kanjorski (D-Pa.)—Capital Markets Subcommittee Chair of the U.S. Congress, as well as Chair of the Financial and Banking Services Sub-committee—makes the astonishing claim that the current financial crisis was triggered by a $550 billion "electronic run on the banks" on September 15, 2008.
Such a claim bears investigation and reporting, and yet I could find no mention of this "run" among the media stories available via Nexis, and a web search produced no legitimate press reportage of it.
Sure, there was plenty of speculation on the discussion sites—the idea was floated that the "run" was a terrorist plot, or a maneuver by the "Saudis" to force the Bush administration to do something to shore up the U.S. dollar. But none of this rang true—these were just more unfortunate "conspiracy theories" of the ilk that proliferates when the public is not promptly and properly informed by the media.
We circulated the above C-Span link to the savvy readers on our newslist, and one reader with a financial and investment background, Bob Gilbert, responded with the following explanation for what happened.
I think the answer to your question is fairly straightforward. However, there are many other questions that are much more troubling.
The answer is that there was a run on the money markets, generally, when a large Money Market (MM) mutual fund (Reserve Primary Fund) "broke the buck." That is, this fund closed out the day with a less (by a few pennies) than $1-per-share net asset value for the fund. Therefore, people panicked and began withdrawing from many MM funds, just as they do from failing banks. This run was made by individuals and institutions.
There is some $2.5 trillion estimated to be invested in these funds. Thus I don't think that there are entities "responsible for this "electronic run," other than the individuals and institutions trying to protect their assets by behaving in a perfectly rational manner, given the circumstances. It is also noteworthy that there all all kinds of MM funds in terms of assets held, rate of return, and costs. Examples are treasury bills and bonds, other government debt, corporate debt, and, in some cases, the evil CDOs (collateralized debt obligations). Therefore, each MM fund has its own specific risk profile.
A more important question, I think, is about the behavior of Rep. Paul Kanjorski and his fellow members of the House Capital Markets Subcommittee. It was before this committee that Harry Markopolos appeared last week to testify about his warnings about Bernie Madoff.
Markopolos and the subcommittee members devoted much time to laying out the multitudinous and egregious failures of the SEC with respect to Madoff. During the questioning, Markopolos was asked his opinion of another regulatory entity that is supposed to be overseeing and policing the activities of a segment of the financial services industry—broker/dealers. This one is called the Financial Industry Regulatory Authority (FINRA). It is a non-governmental organization run by the broker/dealers (think: fox watching the henhouse), empowered by the U.S. Congress to do so. Its powers include arbitrating disputes between customers and their broker-dealer members, since aggrieved customers are not usually permitted access to the courts. Supposedly, the U.S. Congress oversees FINRA activities.
Now, Markopolos was asked to compare the SEC and FINRA. His answer was short and pithy: the SEC is incompetent; FINRA is corrupt. (This was particularly interesting to me since I have been the victim of FINRA misbehavior.)
I was aware that President Obama had appointed one Mary Shaprio to be the new head of the SEC, replacing the clueless Christopher Cox. I also knew that Mary Shapiro's previous job was head of FINRA, where she was paid approximately $3 million per year, plus another $5-$25 million reward for her FINRA exit. So, we have here the chief of a corrupt regulatory body, being appointed to clean house at an incompetent regulatory body. She was unanimously confirmed by the U.S. Senate.
Now, neither Rep. Paul Kanjorski nor anyone else on his subcommittee, including the person who asked about FINRA, said one thing about the idiocy of shipping Mary Shapiro from FINRA (corrupt) to the SEC (incompetent). And, have you read any expression of outrage from any member of Congress about the appointment of Shapiro?
I was also struck by Rep. Kanjorski's idiodic statement during the interview that "somebody" threw us into the (financial) ocean, and now he is trying to find the shore. He says this as if it is ineffable who is the "somebody." And, of course, when the going gets a little rough, he takes one leg off of his high horse and says, "I'm not an expert on these matters, I'm just a little ole representative of the people." That is, his office is set up and staffed to send flags and arrange tours for his constituents, and little else.Thanks to Gilbert's lead, we tracked down good news stories that substantiate his account; check out what U.S. News & World Report, New York Times, The Wall Street Journal, and Bloomberg, among other news sources, for thorough coverage of the Money Market Fund that "broke the buck." Based on the facts of the case, it appears that Kanjorski, as Gilbert suggests, is engaging in self-serving revisionist simplification of how we got into this economic mess.
I'm glad to report that our media aren't brain-dead about how the markets got into trouble; my error in trying to find the relevant information was that I stupidly included "Kanjorski" in my search string, looking to see what media picked up the story about what he alleged. Kanjorski in this case is just another sorry political bit player who's trying to deflect blame from himself and his cohorts on the impotent congressional financial oversight committees.
If C-Span's moderators don't challenge their interviewees, we can all be easily duped into believing we were being informed. I apologize to those on our news list to whom I sent the Kanjorski C-Span link.
But the real story—the one that Gilbert so eloquently describes—most definitely has not been covered properly by our media, and that is the revolving door between FINRA and the SEC. This story about potential corruption and incompetence is too important to relegate to the inside pages of the business section—if it's covered at all.
End Cherbonnier article.
About Mary Shapiro: I wrote an article for RightPundits about her and her connection to Madoff. This is one more pitiful, political and maybe, criminal, appointment by Barack Obama.
Again, thanks to Pat Dollard.
The video and transcript that got it all started, or watch the video below.