09 July 2011
Now a couple of Bloomberg articles throw light on the sudden rise in money supply. See Lehman borrowed $18 billion from undisclosed Fed program during '08 crisis and Goldman Sachs took biggest loan from undisclosed 2008 Fed crisis program. The loans were made under a program known as the Fed's single-tranche open-market operations or ST OMO. The detailed information was released by the Fed after Bloomberg put in a Freedom of Information Act request for details.
The peak of the lending to units of 19 banks from 7 March 2008 to 30 December 2008 was $80 billion in loans outstanding. In the graph of Corrected Money Supply the sudden rise is about $130 billion. The difference is about $50 billion. I wonder whether there were any other secret loans to other parties under other programs.
The loans seem to have been put right back into trading in an effort to recoup losses but the effort failed and money supply plunged again.