In this chapter, two friends who had not seen each other in years joined a wildlife rescue team to determine security of bald eagle fledglings in a vast natural recreation area. After the work was complete they went camping as a reward. What happened that evening in the rugged wilderness taught as much about nature, as it did about strength, precision and determination, in a man named Peter Churchfield. Who made a fortune while all those around him were losing theirs. Continuing the conversation from last time…
Peter’s intuition told him things were about to get worse. His strong business capabilities made him trust his own judgment above others’, and he knew there would be pressure on money-market accounts because of the failure. He intuitively understood the aggregate of events driving the catastrophe. All the dominoes were falling.
Next, the large insurance company AIG acknowledged credit concerns due to continuing losses on mortgage-backed securities, sending company leaders into fears of insolvency. In one day, the net asset value of shares in a primary money-market fund fell below one dollar, thus “breaking the buck.” This came primarily because of losses on Lehman Brothers’ commercial paper and medium-term notes.
Some depositors panicked and immediately tried to withdraw all of the funds they could. Federal Reserve Chairman Ben Bernanke announced that the Fed would insure every penny housed in money-market funds.
Peter and I discussed that something was terribly wrong. Even at the highest levels of government, things were moving so frantically fast that leaders at the Federal Reserve failed to consider bank balances were only insured for $100,000 in most cases. Depositors, trusting the Fed’s statement, rushed to shift any excess from the banks to what Chairman Bernanke had said were fully insured money-market funds. And bank deposits continued draining.
The crisis rapidly reached global proportions, resulting in a number of bank failures in Europe and sharp reductions in the value of equities and commodities worldwide. Bank failures in Iceland resulted in a devaluation of the Icelandic króna and threatened its government with bankruptcy. A few weeks later, Iceland’s three main banks collapsed.
Continued here next time.
Read the complete story in the book, The Quiet Rich: Ordinary People Reawakening an American Dream.
Kevin J. Palmer, Author
