By all accounts the sky was falling on December 5, 2008.  Several months before, credit market liquidity had glazed over like cold winter molasses and, after over 150-years of business, Lehman Brothers had ignominiously vanished from the face of the earth.  What’s more, just eleven days after Lehman Brothers went bust, Washington Mutual kicked the bucket too.

The demise of Lehman Brothers ($691 billion) and Washington Mutual ($327 billion) marked the two largest American bankruptcies in history.  But that wasn’t all that was going wrong at the time.  Stocks had fallen off a cliff – the DOW had dropped 23 percent over the past three months – and the economy was in shambles too.

On that Friday, the Labor Department reported the economy had lost over a half million jobs in November and over 1.3 million jobs since August of that year.  Terror and panic had spread from Wall Street and Main Street to Washington, and the Fed was determined to prevent an economic depression no matter what the cost.

No one knew it at the time.  In fact, it wasn’t public news until last week.  But thanks to the work of Bloomberg, it has been documented that on December 5, 2008, the Fed loaned out a single-day peak of $1.2 trillion to banks and financial companies through the various lending facilities it set up in fall of 2008 to backstop financial markets. Continue reading →