Lehman and the Bailout

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LEHMAN AND THE BAILOUT….Was last week’s financial crisis caused by the Fed’s decision to allow Lehman Brothers to go into bankruptcy? I’m not sure, but here’s the basic argument in favor of this scenario:

  1. Monday: Fed allows Lehman to go bankrupt.

  2. Tuesday: Reserve Prime, a money market fund with exposure to Lehman securities, announces that it has “broken the buck.” Money market funds are supposed to be the safest places possible to park your cash outside of T-bills, so this causes a panic.

  3. Wednesday: Depositers start making large-scale withdrawals from other money market funds. Banks need to service these withdrawals, so they begin hoarding cash and calling in their short-term loans (excess reserves held by banks increased last week from a normal $2 billion to nearly $200 billion). Every bank is doing the same thing, so no money is available for normal interbank loans. LIBOR skyrockets.

  4. Later Wednesday: with everyone hoarding cash, the credit markets seize up completely. The commercial paper market, which funds actual operations of actual companies, is close to death. The entire financial system is near collapse.

  5. Thursday: Bernanke and Paulson announce their bailout plan. This reduces the panic that banks will go bust and thereby frees up the credit markets a bit.

More details here. If I understand everything correctly, Bernanke and Paulson basically took a look at what happened after they allowed Lehman to collapse and decided it couldn’t happen again. Hence the bailout.

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Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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Truth #5: It's about minority rule.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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