Voltron says: Rep. Paul Kanjorski (D-PA) Capital Markets Subcommittee Chair, revealed on C-Span exactly what happened last summer that frightened the government into passing the original TARP legislation. It's pretty scary how close we came to complete collapse of the entire financial system and the government. For more background on what happened around that time read this : http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?_r=1
Rep Paul Kanjorski [2:02]: They are right to this extent. Why did we do that? We did that because the Secretary [Paulson] …
Look, I was there when the Secretary and the Chairman of the Federal Reserve came those days and talked with members of Congress about what was going on. It was about September 15th .
Here’s the facts, and we don’t even talk about these things. On Thursday [that would have been September 11, 2008], at about 11 O’clock in the morning, the Federal Reserve noticed a tremendous draw-down 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. The Treasury opened up its window to help. They pumped $105 billion in the system and quickly realized that they could not stem the tide.
We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there. And that’s what actually happened.
If they had not done that, their estimation was that by 2 o’clock that afternoon [Sept 11, 2008] $5.5 trillion would have been drawn out of the money market system of the United States — would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.
Now we talked at that time [around Sept 15th?] about what would happen if that happened. It would have been the end of our economic system and our political system as we know it. And that’s why, when they made the point we’ve got to act and do things quickly we did.
Now Secretary Paulson said let’s buy out the subprime mortgages. That’s what he came to Congress [with] — but he said give us latitude and large authority to do many things as we decide … necessary. And give us $700 billion to do that.
Shortly after we enacted our bill with those very broad powers, the UK came out and said: No we don’t have enough money to buy toxic assets. Instead we’re going to put our [UK's] money into banks so that their equity grows and they’re not bankrupt. And so the UK started that process and that’s true. It was much cheaper to put more money in banks as equity investments than to start buying their bad assets. Because it became early determined that we’d probably have to spend $3 or $4 trillion of taxpayers’ money to buy these bad assets. And we didn’t have — we only had $700 billion.
So Paulson made a complete switch, went in and started putting money [into] buying securities and reinvesting into banks in the United States.
Why? Because if you don’t have a banking system you don’t have an economy … [4:49]
YouTube video of the interview http://www.youtube.com/watch?v=pD8viQ_DhS4.
Voltron says: If you watch the whole video, you'll here a nutty caller berate Rep Kanjorski on the bailout, and the congressman admits that the government has no idea what it is doing and sincerely suggests that perhaps the (crazy) caller might have a better idea.