Imagine a financial catastrophe which was 39 times more expensive than the recent bailout of AIG. Imagine that the first domino had already been triggered in this otherwise "unimaginable event" and no one told you about it. Sadly, there is no need to imagine anything, anymore.
As the financial industry laments over the last eighteen hours of the existence of WAMU, almost no media outlet has addressed the question of what is taking place in the United States Money Market Fund Industry. A WAMU merger, or even failure when Regulators officially close the doors on Friday night, will cost the FDIC and taxpayers somewhere in the neighborhood of $7 Billion Dollars.
A total failure of the U.S. Money Market Fund Industry could conceivably result in a loss of up to $3.5 Trillion Dollars...or to put more simply...a sum which is more than 8 times greater than the total current federal budget deficit.
Very quietly, over the last five business days, Money Market Fund Shareholders in the United States have started a run on Money Market Shares, withdrawing more than $169 Billion Dollars from Money Market Funds during that five day period.
While public attention was focused on one bank, one insurance company, and one investment house, whose total combined exposure to the U.S. Taxpayer would never exceed $200 Billion Dollars, the Mainstream Media, and the Bush - McSmokeScreen Administration virtually made sure that you were unaware of the potential "Mother of All Financial Disasters"...the total collapse of the U.S. Money Market Fund Industry.
Immediately after the Markets closed on Thursday, Putnam Investments announced that it was voluntarily terminating the operation of its Reserve Primary Fund. At the close of business on Tuesday, the Reserve Fund had assets of nearly $15.5 Billion Dollars. A mere twenty-four hours later, the same Fund had barely $12 Billion Dollars. Institutional Shareholders had started a run on the Fund and redeemed Shares representing more than 20% of the entire value of the Fund, compromising its continued viability in a single afternoon.
With the total value of the fund already at a point where remaining Shareholders would be returned only $.93 on the dollar, Putnam elected to exercise its right to terminate operation of the Fund, putting an end to the run on the Reserve Primary Fund.
So, on a day when the Republican National Committee fully understood that another 449 Point drop in the Dow would have ended the Presidential race on the spot...Treasury Secretary, Henry Paulson was instructed to inform the Financial Industry that he "might" be willing to support the formation of a new Resolution Trust-style Corporation...triggering a 400 Point rise in the Dow.
This, of course allowed Johnny McDevious to spend his afternoon pretending to be a tough guy, and telling his Single Digit IQ Supporters about how he was going to fire the Chairman of the SEC...instead of how he was going to actually fix what was wrong with the Banking and Financial Industry.
In his very first public appearance after Paulson told Wall Street what he "might" be willing to do, John Charlie McCarthy virtually repeated the Talking Point as if it were the first original idea he has had since 1939. He was even McSly enough to give his version of the largest corporate bailout in the history of the United States, a name that not even Paulson and McBush had devised.
"Mission Accomplished".
AIG was handled and the fallout now yesterday’s news...at least to anyone who mattered. Morgan Stanley was having far less difficulty attracting suitors than WAMU. And, clearly enough foundation for the WAMU exodus had been laid, far enough in advance, so that the padlocked front doors weren't going to cause a 449 Point drop in Monday’s trading session.
How do you stop an Obama from stampeding?
You do what the Republican Party always does. You promise the country a solution that you don't have, to a problem they won’t know exists...until after you have gotten what you need, and when there is nothing they can do about it.
Over an eighteen month period, Johnny McBlivet told the American People that the fundamentals of the American economy were still strong...twenty-two times. An hour after even the White House had to admit that it had sold the nation a bill of goods, Johnny McBackPeddle and his Eskimo Companion, Tonto, each used the word "reformer," twenty-three times in a single sentence.
Now, the same person who was admonished by the Senate Ethics Committee for selling the Power of his Office to a convicted felon during the S&L Scandal because he tried to prevent bank Regulators from doing their job...and who was later instrumental in the passage of the very piece of legislation which caused the current Banking and Financial Crisis...and who would appoint as his own Treasury Secretary, the virtual architect of this crisis...teams up with a VP Candidate who is herself the target of an investigation into her own abuse of the Power of her Office...to stand in front of the American People and announce that they want to reform the government, and be true to their pledge to create less government, by proposing to create the largest and costliest new government agency in the last sixty years.
More importantly...they didn't bother to tell the American People what at least some on Wall Street are finally beginning to admit, if only privately. This crisis isn't close to being over. The truth is...it has only just begun.
Putnam found out this afternoon.
Now...you know it, too.