Staring Into the Abyss

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STARING INTO THE ABYSS….Joe Nocera has a pretty readable tick-tock about the events that led up to the unveiling of the Paulson bailout plan. It started on Monday the 15th when Lehman Brothers was allowed to go bankrupt, accelerated on Tuesday when the Reserve Primary Fund broke the buck, and went critical on Wednesday:

Since the Bear Stearns bailout, Treasury and Fed officials had discussed what a broad government intervention might look like….Almost from the start, they concluded the best systemic solution was to buy hard-to-sell mortgage-backed securities.

On Wednesday morning, during a conference call with other top officials, including Jean-Claude Trichet, the president of the European Central Bank, Mr. Bernanke sounded them out on a big government bailout. The other officials sounded relieved; their main questions were about whether Congress could act quickly.

That evening, Mr. Bernanke told Mr. Paulson during a conference call: “You have to go to Congress. This is pervasive.” Mr. Paulson agreed.

…. [On Thursday evening], Mr. Paulson and Mr. Bernanke trooped up to Capitol Hill for a somber session with Congressional leaders. “That meeting was one of the most astounding experiences I’ve had in my 34 years in politics,” Senator Schumer recalled.

As the members of Congress and their aides listened, the two laid out their plan. They would begin offering federal insurance to money market funds immediately, in order to stop the run on money funds.

In addition, the S.E.C. would institute a ban on short-selling of financial stocks. Although Treasury officials concede that the move was mostly symbolic — investors can still buy put options that have the same effect as shorting stocks — they did it mainly “to scare the hell out of everybody,” as one official put it.

After Mr. Bernanke made his remark about the possibility that there might not be an economy on Monday without this plan, you could hear a pin drop.

“I gulped,” Mr. Schumer said.

Whether you like the bailout plan or not, it’s worth reading the whole thing to get a good sense of what prompted it.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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