The Economy, stupid

[Balta1701]

There's a huge debate going on in accounting circles about how to "fair value" these assets (in a bank's case, these are assets). IASB and FASB are studying it and have some proposals on the table. This pronouncement could be one of the biggest in years. Remember, there will be one set of accounting standards in the next 5 years (supposedly) and international views on how this gets booked is currently significantly different then how US companies do it. That's part of why this all started here and have now flushed out in the rest of the world.

Love to hear other opinions on this. If you were a government buying htese things up, how would you value them?

[kapkomet]

Love to hear other opinions on this. If you were a government buying htese things up, how would you value them?

It's a good question - because honestly that's the million dollar question now. I have some high level ideas, but if I figure it out in detail, I will not need to find a job again for the rest of my life.

 

I'll throw my high level ideas out later - I need to go help carry in groceries.

 

[Balta1701]

It's a good question - because honestly that's the million dollar question now. I have some high level ideas, but if I figure it out in detail, I will not need to find a job again for the rest of my life.

 

I'll throw my high level ideas out later - I need to go help carry in groceries.

LOL

 

Couple suggestions I've read recently are to figure out not what they're worth but what it would take to make the books of the banks solvent, and offer them that plus like $.01 so that they just don't go bankrupt while the government eats the rest, or to set the bad bank up with a clawback provision; offer the banks one value now but attach a clawback provision so that the banks get enough $ to survive for now, but once we have some idea of how many of these assets have gone bad the government can claw back some funds years down the road once the banks have recovered.

[Balta1701]

If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn't be able to find first base

-Harry Markopolos (The Madoff whistleblower) in testimony today.

[kapkomet]

-Harry Markopolos (The Madoff whistleblower) in testimony today.

 

Nice quote. Seriously, they can find first base, but do they want to find first base? That's really the question here.

 

[Balta1701]

 

Nice quote. Seriously, they can find first base, but do they want to find first base? That's really the question here.

It's hard to make a person find first base if their salary depends on them striking out every time.

[mr_genius]

http://www.alleyinsider.com/2009/2/ibm-to-...ve-to-india-ibm

 

Recent announcements of mass layoffs have created new scrutiny around the H-1B visa program, which brings foreign tech workers (mostly from India) to the US for work (at below-market wages, critics say). But IBM (IBM) is going with a novel tack: Instead of bringing cheap Indian workers to America, the company is demanding its American workers move to cheap India and get paid India-standard wages.

 

 

haha wow. first time i've heard this one.

Edited February 4, 2009 by mr_genius

[Balta1701]

This seems like a very cool and useful weapon in fighting back in Wall Street's war on America.

Until now, an objective evaluation of 401(k) plans has been extremely difficult because of the complexity of these plans and the cleverly hidden costs which would take a pension actuary to uncover. These excessive fees have dramatically reduced employees account balances. By some accounts, the combination of poor investment options, high expenses and poor planning have caused many plan participants to have a zero return on their 401(k) investments.

 

A recently launched web site, Brightscope, may change everything.

 

Brightscope crunched 401(k) plan data from public resources and compiled an extensive database of information. Using over 200 data points, including plan costs, amount of matching contribution and quality of investment options, it assigned a numerical rating to each plan. It then compared the rating to the lowest, average and highest rating in the peer group. It also calculated how many additional years an employee in a given plan would have to work, and how much was lost in retirement savings, compared to the highest rated company in that peer group.

 

The results are eye-opening.

 

Here's an example:

 

I took a look at the 401(k) plan for Starwood Hotels. This plan has a whopping $635 million in assets and 45,000 participants. The average account balance is only $14,000.

 

You would think Starwood would regard these assets as a sacred trust and would want to do everything possible to maximize the returns of its employees, many of whom are at the low end of the socio-economic scale.

 

The Brightscope investigation and rating paints a far different picture.

 

The Starwood plan had a rating of 39. The average rating for its peer group was 43. The highest rated plan in the group had a rating of 67.

 

Brightscope calculated that Starwood employees would have to work an additional eleven years to achieve the additional $159,700 earned by employees with the highest rated plan in its group. That's a lot of guests to check in, bags to carry, meals to prepare and rooms to clean.

 

Brightscope rated the plan cost as "highest," and the company generosity as "below average," among other ratings. It is not surprising that the participation rate in this plan is just "average."

 

Brightscope's transparent ratings should have a very positive effect on 401(k) plans. Companies pay for a full report and analysis which will permit them to improve their score by changing their plan. Plan participants will now have an objective basis for lobbying their employers for better plans. Access to the ratings system is free.

 

401(k) plans have been accurately described as The world's largest skimming operation - a $7 trillion (now $12 trillion) trough from which fund managers, brokers, and other insiders are steadily siphoning off an excessive slice of the nation's household, college, and retirement savings.

[NorthSideSox72]

This seems like a very cool and useful weapon in fighting back in Wall Street's war on America.

Similar to health care, 401k participation sorely lacks real choice. Most companies that offer them, offer one fund company. You can choose from many different funds of course, which also has a major effect on your outcome. And the match level is really just part of compensation (though many people fail to take it into account, good or bad). But the expense ratios at fund houses are rising quickly, even as brokerage costs to them are decreasing. And consumers lack real choice.

 

This website is a good start - the more information the better.

 

But even better, would be to find some way where you could have companies work not with individual fund firms, but with some sort of pool, and their employees could choose which fund house to go with. The differential cost if this sort of thing should be very small, so, it should be realistic. Companies could even choose to just do it on their own, by offering more than one choice. This could be incented in some way, perhaps via business tax breaks to offset any additional costs of adding more fund house choices.

 

 

[Balta1701]

Similar to health care, 401k participation sorely lacks real choice. Most companies that offer them, offer one fund company. You can choose from many different funds of course, which also has a major effect on your outcome. And the match level is really just part of compensation (though many people fail to take it into account, good or bad). But the expense ratios at fund houses are rising quickly, even as brokerage costs to them are decreasing. And consumers lack real choice.

 

This website is a good start - the more information the better.

 

But even better, would be to find some way where you could have companies work not with individual fund firms, but with some sort of pool, and their employees could choose which fund house to go with. The differential cost if this sort of thing should be very small, so, it should be realistic. Companies could even choose to just do it on their own, by offering more than one choice. This could be incented in some way, perhaps via business tax breaks to offset any additional costs of adding more fund house choices.

Or, perhaps employees of companies could band together to form some sort of group that gave them bargaining power to push for a better plan if they had easy access to the details of their plans and felt they were being ripped off.

 

We could call these groups "onions" or something close to that.

[NorthSideSox72]

Or, perhaps employees of companies could band together to form some sort of group that gave them bargaining power to push for a better plan if they had easy access to the details of their plans and felt they were being ripped off.

 

We could call these groups "onions" or something close to that.

Most "onions" probably don't have much knowledge about these things, and they tend to focus on salary, health care, and the dinosaur known as pension plans. Also, most people aren't part of "onions".

 

Instead of bullying businesses, which is unfortunately what unions often do in the modern context, I'd rather see the government incent businesses in positive ways to foster this.

 

[Balta1701]

Most "onions" probably don't have much knowledge about these things, and they tend to focus on salary, health care, and the dinosaur known as pension plans. Also, most people aren't part of "onions".

 

Instead of bullying businesses, which is unfortunately what unions often do in the modern context, I'd rather see the government incent businesses in positive ways to foster this.

IMO, being able to lobby for a better quality 401k plan for a company's employees is exactly the sort of thing a union ought to be able to do in the modern environment now that most companies have moved away from the defined benefit plans to the defined contribution plans to screw their employees save money. If companies are adapting, why shouldn't the Unions? And hopefully the unions won't have to worry about debating health care with businesses for too much longer.

 

And the fact that most people aren't part of unions is of course a great argument for expanding them. EFCA anyone?

[NorthSideSox72]

IMO, being able to lobby for a better quality 401k plan for a company's employees is exactly the sort of thing a union ought to be able to do in the modern environment now that most companies have moved away from the defined benefit plans to the defined contribution plans to screw their employees save money. If companies are adapting, why shouldn't the Unions? And hopefully the unions won't have to worry about debating health care with businesses for too much longer.

 

And the fact that most people aren't part of unions is of course a great argument for expanding them. EFCA anyone?

Choosing 401 over pension isn't screwing anyone, its a better system for everyone involved.

 

And unions are not the answer, IMO. I have no problem with unions per se, but in their current mode, they don't work a lot of the time.

 

[Balta1701]

Choosing 401 over pension isn't screwing anyone, its a better system for everyone involved.

If the equity premium exists, and the 401k's are managed in a fair method such that it's not just a method of sucking out fees and giving them to investment banks (and hence, this sort of information is available), I'll agree.

[NorthSideSox72]

If the equity premium exists, and the 401k's are managed in a fair method such that it's not just a method of sucking out fees and giving them to investment banks (and hence, this sort of information is available), I'll agree.

If the equity premium doesn't exist, then pensions are just going to hurt businesses, who will then lay people off. Businesses and governments should not be in the business of running investment plans, unless they are investment firms.

 

[Balta1701]

If you've got 10 minutes and can watch a video that sums up almost completely how we got in to this mess, I recommend this video highly. CNBC scores an interview with Nouriel Roubini and Nassim Taleb (author of the book "The Black Swan").

 

Roubini and Taleb spend their time elaborating on how the system has broken itself, how the mass of credit has screwed everyone, how everything is over-leveraged, how the corruption in the system has absolutely burnt everything down, and how we need complete reform and we need to clear out even the people running things right now because they were too dumb to see things coming and that helped build the problem.

 

In response, CNBC keeps asking them for stock picks.

 

Over and over.

 

It's a true marvel.

 

Edit; seriously, take the time to watch this video. They're explaining not just how the stock market is going down, but how the whole system itself, including the government, the media, Wall Street, etc., is fundamentally broken and needs reformed. The guys doing the interview are just fundamentally unable to process this idea. To them, this is all just another business cycle, things go down, then at some point they turn around. They simply can't assimilate the concept that the system itself is fundamentally broken or that if the appropriate action isn't taken now, it could just spiral down 1930's style. Watch how they blurt out "how does executive compensation have anything to do with this?" without realizing that executive bonuses based on short term profits directly feed in to over-leveraging and bubbles.

[southsider2k5]

If you've got 10 minutes and can watch a video that sums up almost completely how we got in to this mess, I recommend this video highly. CNBC scores an interview with Nouriel Roubini and Nassim Taleb (author of the book "The Black Swan").

 

Roubini and Taleb spend their time elaborating on how the system has broken itself, how the mass of credit has screwed everyone, how everything is over-leveraged, how the corruption in the system has absolutely burnt everything down, and how we need complete reform and we need to clear out even the people running things right now because they were too dumb to see things coming and that helped build the problem.

 

In response, CNBC keeps asking them for stock picks.

 

Over and over.

 

It's a true marvel.

 

Edit; seriously, take the time to watch this video. They're explaining not just how the stock market is going down, but how the whole system itself, including the government, the media, Wall Street, etc., is fundamentally broken and needs reformed. The guys doing the interview are just fundamentally unable to process this idea. To them, this is all just another business cycle, things go down, then at some point they turn around. They simply can't assimilate the concept that the system itself is fundamentally broken or that if the appropriate action isn't taken now, it could just spiral down 1930's style. Watch how they blurt out "how does executive compensation have anything to do with this?" without realizing that executive bonuses based on short term profits directly feed in to over-leveraging and bubbles.

 

The irony of that is if the government hadn't have made the disclosure of executive salaries a law for public companies, we would have never gotten into the situation where there was a public bidding war for executives, and their compensation packages would have never blown up the way that they did in an effort to out do one another.

 

[Balta1701]

The irony of that is if the government hadn't have made the disclosure of executive salaries a law for public companies, we would have never gotten into the situation where there was a public bidding war for executives, and their compensation packages would have never blown up the way that they did in an effort to out do one another.

Are you coming back to Sarbanes/Oxley for that again? Because executive compensation was through the roof before that happened. It may not have worked but it was at least a proposed idea for fixing what was already being viewed as a problem; this graph.

 

 

Sarbanes/Oxley may not have been a part of the solution, but it isn't the cause of the problem. That problem was there well before that bill.

[kapkomet]

SOX and executive compensation are two completely different issues. I have a really good article in a financial magazine about exec compensation, what caused it to sky rocket and what they should try to do about it (short of the government getting involved.) That same magazine has a lot of interesting stuff about the "fair value" concept that we talked a little about a week or so ago (that I didn't answer very well but I will, sometime soon).

 

[southsider2k5]

Are you coming back to Sarbanes/Oxley for that again? Because executive compensation was through the roof before that happened. It may not have worked but it was at least a proposed idea for fixing what was already being viewed as a problem; this graph.

 

 

Sarbanes/Oxley may not have been a part of the solution, but it isn't the cause of the problem. That problem was there well before that bill.

 

What did you post earlier about a completely different statistic being used to prove something that wasn't really relevant? Why post the ratios instead of the actual CEO compensation numbers? The rate of increase got out of control after the government tried to fix this. It doesn't give me great hope that they can fix it this time. Really that big public knowledge it what brought the whole stock and options thing into vogue, because others found out what they were missing out on, and this was a way a public company could give more money to a CEO without writing a bigger check. This wouldn't have happened if the government had stayed out of the way.

[Balta1701]

What did you post earlier about a completely different statistic being used to prove something that wasn't really relevant? Why post the ratios instead of the actual CEO compensation numbers? The rate of increase got out of control after the government tried to fix this. It doesn't give me great hope that they can fix it this time. Really that big public knowledge it what brought the whole stock and options thing into vogue, because others found out what they were missing out on, and this was a way a public company could give more money to a CEO without writing a bigger check. This wouldn't have happened if the government had stayed out of the way.

Because I'd say 90% of people out there don't post the raw #'s, they post the comparison numbers. It makes sense anyway, it normalizes out the average inflation. And quite frankly, when I googled it, the first 10 graphs or so all showed it in that normalization.

 

Here's the only presentation of the raw #'s I could find.

 

Source is here, indirectly using the WSJ name. Grabbing a few extra details:

Total Cash Compensation Change Since 1997

The May 2007 Company Average Index of Total Cash Compensation is 204.2, using the 1997 level base of 100. Since 1997, the Average Company Percent increase in Total Cash Compensation for the highest paid executives is 104.2%.

 

Compensation and Revenue Changes Since 1997

The Average Index of Corporate Revenue is 219.8, using the 1997 level as a base of 100.0. Since 1997, the Average Company Percent increased in Revenues is 119.6%. This compares to the increase of 104.2% in the Index of Total Cash Compensation.

 

A review of the year-to-year data shows a change in pattern from 1997 to 2007. Prior to 2002, compensation was rising at a faster rate than revenues, but in more recent years, executive compensation is rising more slowly than corporate revenues. The May 2007 Index shows a continuation of this trend.

 

The Total Cash Compensation Index reflects data from a representative group of 44 publicly traded companies randomly selected from the approximately 6,500 companies that report compensation data to the Securities and Exchange Commission (SEC). The May 2007 index has been adjusted to reflect merger activity which has occurred since the inception of the index. The Index has tracked pay for the highest paid executive in this group of companies since 1997.

 

I think the normalized one is also interesting in that it actually increases the boost the last 5 years or so, because the median income has declined relative to inflation.

 

And one more point...if you accept that a huge chunk of corporate profits being tied up in bonuses and salaries is a problem, but you say that the government can't fix it, please offer up a solution, because right now nothing is going to fix it, and as I mentioned, the bonus reward for producing high quarterly/yearly profits combined with the lack of penalties for long term failure is almost a guaranteed method to continue driving the explosion of investment bubbles.

[kapkomet]

Because I'd say 90% of people out there don't post the raw #'s, they post the comparison numbers. It makes sense anyway, it normalizes out the average inflation. And quite frankly, when I googled it, the first 10 graphs or so all showed it in that normalization.

 

Here's the only presentation of the raw #'s I could find.

 

Source is here, indirectly using the WSJ name. Grabbing a few extra details:

 

 

I think the normalized one is also interesting in that it actually increases the boost the last 5 years or so, because the median income has declined relative to inflation.

 

And one more point...if you accept that a huge chunk of corporate profits being tied up in bonuses and salaries is a problem, but you say that the government can't fix it, please offer up a solution, because right now nothing is going to fix it, and as I mentioned, the bonus reward for producing high quarterly/yearly profits combined with the lack of penalties for long term failure is almost a guaranteed method to continue driving the explosion of investment bubbles.

When you look at the relative percentage of these bonuses, they are a very small overall percentage of the company profit. It's a piss in the ocean to talk about what you're going after, it's only symbolism.

 

[southsider2k5]

Because I'd say 90% of people out there don't post the raw #'s, they post the comparison numbers. It makes sense anyway, it normalizes out the average inflation. And quite frankly, when I googled it, the first 10 graphs or so all showed it in that normalization.

 

Here's the only presentation of the raw #'s I could find.

 

Source is here, indirectly using the WSJ name. Grabbing a few extra details:

 

 

I think the normalized one is also interesting in that it actually increases the boost the last 5 years or so, because the median income has declined relative to inflation.

 

And one more point...if you accept that a huge chunk of corporate profits being tied up in bonuses and salaries is a problem, but you say that the government can't fix it, please offer up a solution, because right now nothing is going to fix it, and as I mentioned, the bonus reward for producing high quarterly/yearly profits combined with the lack of penalties for long term failure is almost a guaranteed method to continue driving the explosion of investment bubbles.

 

Actually I don't really see it as a problem. Anyways, you really have to sit and look at the history of government intervention at each step of the way to really understand why we got the place that we are at, and why more government intervention is going to make everything worse in the long run.

 

Community Reinvestment act.- Forces banks to loan to credit risks. This ties up capital in loans that are much more likely to end in foreclosure. The revisions over the years have only made things worse.

 

Sarbanes Oxley- Adds layers of compliance to all corporations, but especially banks, whose whole existance is predicated on the valuation of their asset portfolio versus, plus their liquid assets, measured against their loaned out money. It has led to a massive speed up of bank failures. Many of these are banks that would not have failed historically, but do now because of new laws. This means more FDIC and/or TARP money. The irony is act didn't stop many acts of accounting fraud, right in the governments own quasi organizations of Fannie and Freddie. Another big effect has been to chase companies away from the US because of their compliance standards. The US IPO market has lost a bunch of ground to London especially.

 

Fannie/Freddie- created to absorb risky loans, it gives corporate banks a place to dump off risky loan portfolio after the banks have collected all of the fees and earlier high levels of interest payments from them. It means that banks can engage in taking on more profitable, yet risk activity, and have no adverse effects if they can dump it off on the government. They really rewarded predatory lending by making no financial consequenses for it by the originator.

 

Executive compensation disclosure- Meant to save corporations from themselves, instead it gives other executives the means to know what their peers are making. Imagine finding out the schmuck next to you on the internet all day at work was making twice what you were? All this did lead to an explosion of salaries and benefits as companies fought hard to attract and maintain the best talent. It also pushed up the scale for everyone else on the executive ladder.

 

Financial sector oversight- Instead of having one unified, informed body that oversees the entire financial sector as a whole, we have hundreds of them, each over seeing a little fiefdom. There is no cooperation between organziations, nor is there any information sharing. Oversight is lax, and often bodies contradict each other in how things are managed. Things are are not allowed in one sector, are allowed in another, dispite relationships that would indicate they both should be managed the same way. Its a mess, and you only have to look at the corporate scandals to understand that.

 

Basically time, after time, after time that the government has interveened thinking that they were fixing something, they usually didn't fix the problem, and they broke something else in the process. Waiting for our government to fix the problem which they created doesn't seem like a very smart plan to me.

 

 

[Balta1701]

I'm quite certain I've addressed a number of those points before, most notably the fact that the GSE's simply weren't a major part of the real subprime expansion, but the thing that hurt them was the elimination of $8 trillion or so in total housing wealth in this country.

 

But, I don't think I've posted the analyses that strike at the heart of one of your claims...that the Community Reinvestment Act was a major contributor in causing banks to create bad loans because they were required to do so. It turns out...your claim that those funds are more likely to end up in foreclosure is simply inaccurate. I'll cite my data from a statement by one of the Fed Governors last December.

The research focused on two basic questions. First, we asked what share of originations for subprime loans is related to the CRA. The potential role of the CRA in the subprime crisis could either be large or small, depending on the answer to this question. We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis.

 

Second, we asked how CRA-related subprime loans performed relative to other loans. Once again, the potential role of the CRA could be large or small, depending on the answer to this question. We found that delinquency rates were high in all neighborhood income groups, and that CRA-related subprime loans performed in a comparable manner to other subprime loans; as such, differences in performance between CRA-related subprime lending and other subprime lending cannot lie at the root of recent market turmoil.

 

In analyzing the available data, we focused on two distinct metrics: loan origination activity and loan performance. With respect to the first question concerning loan originations, we wanted to know which types of lending institutions made higher-priced loans, to whom those loans were made, and in what types of neighborhoods the loans were extended.5 This analysis allowed us to determine what fraction of subprime lending could be related to the CRA.

 

Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.6

 

Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.

...

 

To learn more about the relative performance of CRA-related lending, we conducted more-detailed analyses to try to focus on performance differences that might truly arise as a consequence of the rule as opposed to other factors. Attempting to adjust for other relevant factors is challenging but worthwhile to try to assess the performance of CRA-related lending. In one such analysis, we compared loan delinquency rates in neighborhoods that are right above and right below the CRA neighborhood income eligibility threshold. In other words, we compared loan performance by borrowers in two groups of neighborhoods that should not be very different except for the fact that the lending in one group received special attention under the CRA.

 

When we conducted this analysis, we found essentially no difference in the performance of subprime loans in Zip codes that were just below or just above the income threshold for the CRA.9 The results of this analysis are not consistent with the contention that the CRA is at the root of the subprime crisis, because delinquency rates for subprime and alt-A loans in neighborhoods just below the CRA-eligibility threshold are very similar to delinquency rates on loans just above the threshold, hence not the subject of CRA lending.

 

To gain further insight into the potential relationship between the CRA and the subprime crisis, we also compared the recent performance of subprime loans with mortgages originated and held in portfolio under the affordable lending programs operated by NeighborWorks America (NWA). As a member of the board of directors of the NWA, I am quite familiar with its lending activities. The NWA has partnered with many CRA-covered banking institutions to originate and hold mortgages made predominantly to lower-income borrowers and neighborhoods. So, to the extent that such loans are representative of CRA-lending programs in general, the performance of these loans is helpful in understanding the relationship between the CRA and the subprime crisis. We found that loans originated under the NWA program had a lower delinquency rate than subprime loans.10 Furthermore, the loans in the NWA affordable lending portfolio had a lower rate of foreclosure than prime loans. The result that the loans in the NWA portfolio performed better than subprime loans again casts doubt on the contention that the CRA has been a significant contributor to the subprime crisis.

 

The final analysis we undertook to investigate the likely effects of the CRA on the subprime crisis was to examine foreclosure activity across neighborhoods grouped by income. We found that most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.11

 

Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.

 

[Balta1701]

On a slightly different topic, here's a Congressman describing something we probably didn't know about before...the entire financial system almost collapsed in a Money market account run last September.

 

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

 

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have 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 economic system and our political system as we know it.

 

On the other hand, here's the Politico asking if that actually happened. If it did happen, then it's perhaps an incredible missed story by the media; a giant bank run that went unreported. If it didn't happen, then given how he described that, as information coming directly from the people proposing the bailout, then it's worth asking who exactly it was who told him that story.