The pain of Wall Street almost spilled over to the "real economy" (money markets) which would have resulted in runs on banks and a depression.
Interesting that Bernanke commented on the money market funds today.
TARP was just the “tip of the iceberg.”
The scare on Wall Street went into high gear after Lehman collapsed, but it went into sheer hysteria when a money market fund, known as “Reserve Primary Fund,” with holdings of about $65B, marked their NAV (net asset value) to $0.97 as a result of the Lehman implosion. Lehman sold a lot of corporate short-term debt, which had been bought up by various money market funds in the past.
Now, some additional information on Reserve Primary Fund: It’s the nation’s oldest money market fund. By “breaking the buck” (ie, going below $1.00 NAV), Reserve Primary caused a stampede out of money market funds into short-term Treasury debt at a breathtaking pace between September 15 to 16, 2008.
By Friday, Sep. 19, 2008, the Treasury was guaranteeing retirement funds in MMF’s up to $250K, and stood ready to stopgap up to $50B of MMF’s for losses.
And then the bailouts really got going, with TARP and all manner of Fed asset-swap programs.
Now, why is Bernanke running his gob about MMF’s today? I think this has something to do with it:
http://www.reuters.com/article/2012/03/29/reserve-sec-idUSL2E8ETAM120120329
I think some dirty laundry is about to be aired.