Scenario 3 of 5 · Bernanke, September 2008
Lehman has filed. AIG is hours from failure. Treasury is days from asking Congress for $700 billion.
Lehman Brothers filed for Chapter 11 on September 15, 2008. A run is building on money-market funds that hold Lehman paper. Commercial paper markets are seizing. AIG faces a $20 billion margin call it cannot meet.
The Treasury is preparing what will become the TARP — a $700B authorization. The Fed has limited 13(3) authority but you have already extended it further than any predecessor.
The August PMI printed 49.2. Home prices are down about 16% from a year earlier. Your decision: how aggressively does the Fed cut, and which extraordinary facilities does it open?
CPI YoY5.4%
Unemployment6.1%
PMI49.2
Fed Funds2.00%
VIX32
GDP YoY1.4%
Data through Aug 2008 — anything beyond this date is hidden until you decide.