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 DISSENTING STATEMENT

• Thursday, September , the Bush Administration, supported by Fed Chair-
man Bernanke, proposed to Congressional leaders that they appropriate funds
for a new Troubled Asset Relief Program (TARP) to recapitalize banks.
• Friday, September , the  billion TARP was publically announced.
• Sunday, September , the Fed agreed to accept Goldman Sachs and Morgan
Stanley as bank holding companies, putting them under the Fed’s regulatory
purview. After this, there were no large standalone investment banks remaining
in the United States.
• Thursday, September , the FDIC was appointed receiver of Washington Mu-
tual and later sold it to JPMorgan.
• Monday, September , the TARP bill failed to pass the House of Representa-
tives, and the FDIC agreed to provide assistance to facilitate a sale of Wachovia
to Citigroup.
• Wednesday, October , the Senate passed a revised TARP bill. Two days later,
the House passed it, and the President signed it into law. Wells Fargo, rather
than Citigroup, bought Wachovia.
• As the month progressed, interbank lending rates soared, indicating the height-
ened fear and threatening a complete freeze of lending.

The financial panic was triggered and then amplified by the close succession of
these events, and not just by Lehman’s failure. Lehman was the most unexpected bad
news in that succession, but it’s a mistake to attribute the panic entirely to Lehman’s
failure. There was growing realization by investors that mortgage losses were concen-
trated in the financial system, but nobody knew precisely where they lay.

Conclusion:

In quick succession in September , the failure, near-failure, or restructuring of
ten firms triggered a global financial panic. Confidence and trust in the financial sys-
tem began to evaporate as the health of almost every large and midsize financial in-
stitution in the United States and Europe was questioned.
We briefly discuss two of these failures.

The Reserve Primary Fund

The role of the Reserve Primary Fund’s failure in triggering the panic is underappreci-
ated. This money market mutual fund faced escalating redemption requests and had
to take losses from its holdings of Lehman debt. On Tuesday, September , it broke
the buck in a disorganized manner. Investors who withdrew early recouped  cents
on the dollar, with the remaining investors bearing the losses. This spread fear among
investors that other similarly situated funds might follow. By the middle of the follow-
ing week, prime money market mutual fund investors had withdrawn  billion.
When the SEC was unable to reassure market participants that the problem was iso-
lated, money market mutual fund managers, in anticipation of future runs, refused to