Global Bank Holiday
A few weeks ago there was a New Yorker article that chronicled the eight days leading up to and after the collapse of Lehman Brothers (as usual they’ve decided to only offer the abstract to non-subscribers unfortunately). Since I mentioned my penchant for process stories, it should come as no surprise that I quite enjoyed this one. The highlight, though, might have been this quote from a treasury official that basically boils the whole thing down to just a few sentences:
The treasury official described the situation: “Lehman Brothers begat the Reserve collapse, which begat the money-market run, so the money-market funds wouldn’t buy commercial paper. The commercial-paper market was on the brink of destruction. At this point, the banking system stops functioning. You’re pulling four trilliout of of the private sector” — money-market funds — “and giving it to the government in the form of T-bills. That was commercial paper funding GE, Citigroup, FedEx, all the commercial-paper issuers. This was systemic risk. Suddenly, you have a global bank holiday.”