In September 2008, the crisis hit its most critical stage. There was the equivalent of a bank run on the money market funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls. Withdrawal from money markets were $144.5 billion during one week, versus $7.1 billion the week prior. This interrupted the ability of corporations to rollover (replace) their short-term debt. The U.S. government responded by extending insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee and with Federal Reserve programs to purchase commercial paper. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008. COUNT 5
QSN1 The equivalent of a bank run on which funds occurred in September 2008? ANS1 money market funds QSN2 What do money market funds frequently invest in? ANS2 commercial paper issued by corporations QSN3 When did the financial crisis hit its most critical stage? ANS3 September 2008 QSN4 How much was withdrawn from money markets during one week in September 2008? ANS4 $144.5 billion QSN5 What was the record high for the TED spread on October 10, 2008? ANS5 4.65%