The last blog sought to illustrate what the US gets for its $700bn of initial TARP funding. It focused on the limited awareness re: the significance of what the “promise” underlying TARP did for every person, not just the apparent beneficiary, the banks.

My own experience that week in September remains vivid. It was clear to me that a run was getting underway on financial institutions. The following comment by Congressional Rep Paul Kanjorski (D) of Pennsylvania, re: what the Fed was seeing on its monitors that day, provides the tangible evidence that Treasury had to act and pronto. The wave that had developed was the kind that gets bigger and breaks faster under the indecision of government leadership, as it was fueled by fear:

“On Thursday, September 15, 2008 at roughly 11 a.m., the Federal Reserve noticed a tremendous draw-down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two. Money was being removed electronically. The treasury tried to help with $150 billion but could not stem the tide. It was an electronic run on the banks The Treasury intervened, but, had they not closed down the accounts, they estimated that by 2 p.m. that afternoon, within 3 hours, $5.5 trillion would have been withdrawn and caused the collapse of the world’s economy within 24 hours.”

Note the preceding comment occurs at approximately 2:15 of the CSPAN video. You may wish to ignore the opening caller’s comments, as they are off topic, and proceed directly to Rep Kanjorski’s telling of what went on that Thursday in September (the 19th, not the 15th as recalled by Rep Kanjorski) when The Federal Reserve Chair and Treasury Secretary presented dire evidence to Congress re: what was underway with the banks.

It remains true that the banks mangled every principal of risk management, were horrendous financial illiterates and continued to believe it would all get better right up to when they stopped breathing. It’s also true that Congress enabled the failure through tireless promotion of open-faucet lending practices by encouraging FNM & FRE to lend wildly under the guise that everyone had a right to own a home (and get Congressperson Dimwitovich a vote), regardless of whether they could pay for it.

The borrowers & investors join this ignominious club of financial illiterates with their ill-conceived dreams of riches that were to come from real estate prices that would ceaselessly spiral higher, ignoring that that trajectory had already priced out everyone who didn’t own a home from ever owning one, since wages remained flat (i.e. new couples, our children etc.), never mind what that phenomenon would do to social order.

While much finger-pointing and hand wringing continues, the primary beneficiary of the Fed and Treasury’s actions that week in September was everyone. The strategic path to take once the tide was held back is what’s on the table at the moment. Without the first decision, to stop the run, we don’t get the choice of how to make things work going forward.