Doom and Gloomers Seize on False $550 Billion Number

A video click circulating on a number of blogs discusses Representative Paul Kanjorsky’s (D-Pa.) assertion that $550 billion was taken out of “money market accounts” in an “hour or two” on Thursday, Sept. 18, 2008. While the situation was dangerous, we believe that the major facts in this account are false and confused.

See Rush Limbaugh’s blog ( http://www.rushlimbaugh.com/home/daily/site_021009/content/01125106.guest.html), The Market Oracle (http://www.marketoracle.co.uk/Article8805.html), and The Zero Hour (http://www.forexhound.com/article.cfm?articleID=125182). They source the Zero Hedge in a post entitled “How The World Almost Came To An End At 2PM On September 18.”

They quote Kanjorski, “On Thursday at about 11 o’clock in the morning the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States, to the tune of $550 billion was being drawn out in a matter of an hour or two. On Thursday at about 11 o’clock in the morning the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States, to the tune of $550 billion was being drawn out in a matter of an hour or two.”

There are a host of errors in the segment referenced above. First, $550 billion in a matter of hours is ridiculous. While money market mutual funds (not “money market accounts”) were seeing tremendous redemption pressure, the amount totalled at most half that over the entire week (not hours). Money market accounts, which are presumably bank money market deposit accounts (Kanjorski later cites a $250K FDIC limit increase), likely only saw modest outflows. (Retail money market mutual funds saw only modest declines during the week, so money market deposit accounts likely only saw modest redemptions.)

Saying the drawdown would have grown to $5 trillion is ridiculous. Bank savings and money market deposit accounts only amount to $4.0 trillion in total, and money market mutual funds totaled $3.6 trillion at the time. While the situation was certainly dire and unprecedented, somebody is confusing an awful lot of facts and numbers.

To read the account of events while it happened, visit our News archives at  http://www.cranedata.com.