How The World Almost Came To An End At 2PM On September 18

Image via Wikipedia

Zero Hedge: How The World Almost Came To An End At 2PM On September 18: "On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $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.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it."

Related articles by Zemanta

• Rep. Kanjorski: $550 Billion Disappeared in "Electronic Run On the Banks" (boingboing.net)
• Congress Spooked in September By Massive Financial System Run Underway? (paul.kedrosky.com)
• Geithner's Plan: Bail out the Banks, Keep the same people in charge and let them do what they want (firedoglake.com)
• The Case for 4% Mortgages (blogs.harvardbusiness.org)
• Memo to Bernanke: It Could Be Worse (blogs.wsj.com)

Switch to Cash?

Your Money - Switching to Cash May Feel Safe, but Risks Remain - NYTimes.com: "It’s a question we’ve all asked in our darker moments of late: Why not just put all of our investments in cash, 100 percent, just for a little while, until things calm down?"

Some people already seem to be acting on that instinct. In the first six days of October (through Monday), investors pulled $19 billion out of mutual funds that invest in United States stocks, matching the outflows for the entire month of September.

By fleeing for the comfort of safe and insured, however, investors with a time horizon beyond a few years may be doing real damage to their long-term finances. If you’re tempted to make a big move to cash right now, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.

So let’s dispense with the first part straightaway. The right time to move out of stocks was a year or so ago, before various stock indexes the world over fell by one-third or more.

If you missed that opportunity, you’re hardly alone.

But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.