Growing Story: US Economy Almost Collapsed, Sep 2008

[CadensDad]

Probably embellished a bit, but we were a lot closer to collapse than most people realize. The fall of Lehman bros caused unrepairable damage throughout the financial sector. Had more major financial institutions been allowed to fail, we would be deep in a depression right now.

I disagree, I think the majority of Americans know how close to "the depression" we really where.

Anyone who is stupid enough to take their money out of their savings accounts because they are afraid of the bank going out of business deserves to have their money taken and be forcibly sterilized.

The government has been providing FDIC insurance on all banks for decades. People stupid enough to rush to the bank to take their money out, certainly weren't smart enough to amass the wealth to have over the $150k FDIC insurance at the time.

If the banks all close, how does the FDIC get their money to pa back each one of us? And how long would it take before we got our money? And how would we prove/ they prove which amount is correct.


It's tough times and most americans know we dodged a bullet, most of us also know it's most likely going to be a rouch next 2 years before it turns around and that's a big IF it turns around. I have no doubt it is a ugly market that will stay like this for a while

[stevethumb]

I have tried reading more on this, and from what I've found, some of this Rep's facts are a bit off (dates, mostly). The $550B number is legit, though. No list of who made the withdrawals have been released (that I've found), but there has been rampant speculation as to who made them. Regardless, it is known the withdrawals were made by very large institutions.

so $550B was withdrawn..how do they make the leap that $5 trillion WOULD HAVE been withdrawn?! boogeyman story

[RugbyD]

Also, probably not the best pep talk to give the American people during these trying times.

Actually, it could be taken as "the government knows what it's doing, it's not running completely blind so despite the party-line bickering there are good things coming out of Washington".

This was Federal Reserve action, not government action.

And I would contest that the government does not know what it's doing.
Bush stimulus checks - failure
SEC - failure
TARP 1 - failure
Henry Paulson - failure
Temporary short-selling restrictions - failure (non-event, no effect, totally unnecessary)
TARP 2 - pre-failure if judged by market response
Fannie & Freddie - failure
Dodd & Frank - failure
Executive comp limits - conceptual failure
Obama stimulus plan - pre-failure, it's a political package, not an economic one
Congression bank hearings this week - failure, Congress only succeeded in showing their ignorance

[JTWood]

I have tried reading more on this, and from what I've found, some of this Rep's facts are a bit off (dates, mostly). The $550B number is legit, though. No list of who made the withdrawals have been released (that I've found), but there has been rampant speculation as to who made them. Regardless, it is known the withdrawals were made by very large institutions.

so $550B was withdrawn..how do they make the leap that $5 trillion WOULD HAVE been withdrawn?! boogeyman story

$550B in less than two hours is $1.1T every 4 hours, and then I have a feeling that they're assuming exponential panic.

Given the market state, I don't think the assumption of exponential panic is unreasonable, but their $5.5T number is indeed just a guess.

[RugbyD]

Probably embellished a bit, but we were a lot closer to collapse than most people realize. The fall of Lehman bros caused unrepairable damage throughout the financial sector. Had more major financial institutions been allowed to fail, we would be deep in a depression right now.

Are you implying that Lehman should have been saved?

[StlSluggers]

I think what he's saying is that, at minimum, the fall of Lehman caused much of the fear and mistrust that we see in the market now.

[bleach168]

Probably embellished a bit, but we were a lot closer to collapse than most people realize. The fall of Lehman bros caused unrepairable damage throughout the financial sector. Had more major financial institutions been allowed to fail, we would be deep in a depression right now.

Are you implying that Lehman should have been saved?

Yes, Lehman should have been saved.

There are maybe only five large banks in the US that are not insolvent but no one knows which ones because everyone cooks the books and claims to be "fine." So solvent banks won't lend in this recessionary environment for fear of becoming insolvent themselves.

Govt not rescuing Lehman allowed that fear and mistrust to fester. It wasn't until govt started rescuing everybody else that the markets have begun to thaw.

[RugbyD]

Probably embellished a bit, but we were a lot closer to collapse than most people realize. The fall of Lehman bros caused unrepairable damage throughout the financial sector. Had more major financial institutions been allowed to fail, we would be deep in a depression right now.

Are you implying that Lehman should have been saved?

Yes, Lehman should have been saved.

There are maybe only five large banks in the US that are not insolvent but no one knows which ones because everyone cooks the books and claims to be "fine." So solvent banks won't lend in this recessionary environment for fear of becoming insolvent themselves.

Govt not rescuing Lehman allowed that fear and mistrust to fester. It wasn't until govt started rescuing everybody else that the markets have begun to thaw.

That fear and mistrust was well-placed. Lehman was a big zero and everyone knew it. They placed an outsized focus on real estate-related business and in the final days when Fuld was begging people to take them over at essentially any price, everyone passed and for good reason. Saving Lehman would only have perpetuated the lie that everyone already knew was false, resulted in billions of taxpayer money down the drain and no increase in market confidence.

[bleach168]

It's everyone, not just Lehman. You can count on one hand who's not in serious trouble.

Either you save everyone or you save no one and start over from the ground up. To me, the former is less painful because the financial industry is the center pillar of our economy. It fails and everything else goes with it.

[Curtis Pride]

save no one. Let the solvent companies buy up the insolvent companies. Why rescue the companies that are in a bind because of their own foolish lending practices.