Wednesday, February 11, 2009

On September 18th 2008, around mid-day, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke briefed members of the US Congress to tell them that since the opening of the market that day, around 500 billion dollars had been withdrawn from money market accounts. They said that if Congress didn't do something drastic right then and there, the US economy, and the world's economy with it, would collapse immediately. This seems to have decided Congress to pass the first financial rescue or stimulus package of 700 billion in Fall 08.

The markets had started taking a dive on the 9th of September when Lehman Brothers stock dropped 45% in one day, and then again on the 11th. Several other Wall Street investment banks seemed to be on the brink of collapse, and there was talk of a credit crisis. But as the debate on the first stimulus package dragged on into its second week, many were the voices that asked what the emergency really was, and whether (borrowed) tax payer money should be sunk into the apparently bottomless hole of the sub-prime mess. It seemed that something even more dire than the collapse of some investment banks was required to convince Congress to hand 700 billion to Henry Paulson with little to no oversight measures. And of course, something more dire did happen: a 500 billion electronic run on the money markets over a period of 2 hours. Who withdrew the money, where had it come from in the first place, and where did it go?

Between 2001 and 2007, in the wake of the 9/11 attacks, Congress appropriated over 650 Billion for the Iraq and Afghanistan operations of the War on Terror. Some have wondered exactly how that money was spent, and how it is possible that it hasn't resulted in the pacification of either country. One possibility is that most of it wasn't spent there at all. One possibility is that it was laundered and invested in money markets, ready to be pulled out in a sort of 9/11 part 2. This would have both helped create the post 9/11 financial bubble, made money for accomplices, and created the opportunity to, as someone put it, hijack the financial system and crash it into the economy. And with the right foreknowledge, those same few accomplices could have made a nice profit on shorting the very institutions that handled the laundered funds, only to then be given 700 billion more in public money.

In this scenario, the first stimulus package is the financial equivalent of the Patriot Act. Prepared and readied long before it was actually needed, and the emergency that made it necessary created for the occasion. The next obvious question is: what will that 700 billion be used for?