From Megan McArdle…..

What happened last week is that one money market firm advertised its entire portfolio, including a large chunk of Lehman paper worth slightly less than 2% of the total fund assets. Spooked investors, who did not want to lose out if the fund “broke the buck” started withdrawing as fast as their little fingers could punch the buttons on their phones. Now, this money market fund had tens of billions worth of assets; if it started dumping them on the market, it would drive the price down, leaving them even less money to hand back to their shareholders. But there’s a reason investors herd in a bank run: the first people out get all their money back. The rest get trampled in the stampede. The fund–incidentally, the same company that founded the money market industry–“broke the buck”; that is, its shares became worth less than a dollar. It’s as if the value of your bank account suddenly dropped below the amount you’d put in.

This, by the way, is probably not the only fund this happened to, but it was the only fund that a) advertised its holdings and b) was not attached to an institution large enough to easily make good the loss.

Thus was touched off a general run on money market funds that held money for institutions–the kind that require buy ins of a couple million or more. Institutional managers have a strong incentive to do stupid, destructive things, as long as everyone else is doing them. It’s the same reason that IT managers used to buy IBM–not because it was necessarily the best solution, but because as long as you did it, no one could blame you when things went south. “I bought IBM!” troubled CTOs would say when the server crashed. “The whole market is down!” cry money managers when the financial system crashes.

From Bloomberg.com….

General Motors Corp., burning through cash after three years of losses, will tap the remaining $3.5 billion of a revolving credit line as the crisis on Wall Street threatens to crimp companies’ ability to borrow.

The balance of the $4.5 billion line will go to help cover restructuring costs, GM said in a statement late yesterday. The Detroit-based automaker said it also completed a $322 million debt-to-equity exchange.

Time for another bail out.

I think this story from the New York Post is meant to scare middle income Americans in to supporting at bail out of Wall Street. Since most middle income Americans own stocks now a days, the prospect of a stock market meltdown hits them where it hurts. From the Post…

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level – a 22 percent decline! – while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

From the New York Times…

Virtually every career employee — as many as 97 percent in one recent year — applies for and gets disability payments soon after retirement, a computer analysis of federal records by The New York Times has found. Since 2000, those records show, about a quarter of a billion dollars in federal disability money has gone to former L.I.R.R. employees, including about 2,000 who retired during that time.

The L.I.R.R.’s disability rate suggests it is one of the nation’s most dangerous places to work. Yet in four of the last five years, the railroad has won national awards for improving worker safety.

If you read the whole article, you will find that is only the tip of the iceberg.

Naked Capitalism rails against Hank Paulson’s bailout plan. That outrage should be shared by every American regardless of their political ideals. Sadly, the plan will probably be passes by a bi-partisan vote. Such are the wages of fear.

In this week’s essay, Ape Man makes a prediction that seemed more daring last week when it was supposed to run then it does this week. Such are the fortunes of life.

As I go through this story you will get a sense of the drama that has contributed to my silence here. When the stakes get high I get a little more cautious about publishing what I know, even in the semi-anonymous form that I follow.
Early in August, the plant manager’s boss scheduled a visit. In Click Here to continue reading.