The "Disappeared" $550 Billion

Wow. A wealth of conspiracy theories have cropped up in response to Representative Paul Kanjorski’s assertion that at 11:00 am on Thursday, September 18, $550 billion dollars “vanished” in an “electronic run the banks.” The theories include assertions that some shadowy figures orchestrated the event to influence the election. One thing the conspiracy-minded folks are forgetting: Lehman Brothers failed on Monday, 15 September. That occurrence started a week of old-fashioned panic--the withdrawal of money market funds that Kanjorski referenced came not out of the blue, but as a result of several days' worth of anxiety over the economy.

Additionally, Kanjorski seems to have modified September 18th's events. From Ben Smith at Politico:

Some questions have been raised about [Kanjorski's] tale -- Portfolio's Felix Salmon calls it "fiction -- and I asked Kanjorski's spokeswoman, Abbie McDonough, for the congressman's source on the story.

She referred me not to Treasury Department briefings, but to an anonymously sourced New York Post article headed "Almost Armageddon, making roughly the same claims.

That's right--Kajorski was referencing a story in The New York Post. That article, “Almost Armageddon” from 21 September, says:

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, 18 September]. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.

These “rumors” appeared in articles published on September 17th in periodicals including The New York Times and U S News & World Report. In fact, the latter article is titled “Reserve Primary Fund: Investors May Lose.” According to The Post,

Cracks started to show in money market accounts late Tuesday [16 September] when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11.

By Wednesday [the day before the $550 billion “disappearance”], banks sensed a run on their accounts [emph. mine]. They started stockpiling cash in anticipation of withdrawals.

[. . . .] By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services.

By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion.

So nervous consumers and brokers, probably those who read the business sections of newspapers and magazines, were responsible for the “electronic run on the banks.” The only dastardly forces at work here are the ones responsible for this mess in the first place. The recession and credit crisis was not "invented" to embarrass George W. Bush or to get Obama elected. It wasn't China, Russia, or India. It was us.

Will this be noted by people engaged in conspiracy invention? Of course not.

Aside: As Smith suggests, Felix Salmon at Portfolio does a fine job explaining and debunking the "$550 billion" figure-and Kanjorski in general. At The Baltimore Chronicle, Alice Cherbonnier posts a story critical of Kanjorski’s tale and suggests that the Representative is engaging in some “revisionist history” for political reasons.