Money market funds

[Tulpen]

As they are now guaranteed by the government they are better than cash as cash is only guaranteed up to $100,000

Can anyone put any holes in this argument?

[Tulpen]

Looks like I was not the only one thinking about that. They changed the rules again:

http://biz.yahoo.com/ap/080921/financial_meltdown.html

"On Friday, the government said it would use a $50 billion Treasury fund to provide government guarantees for money-market mutual fund accounts. However, in a significant revision announced late Sunday, the Treasury Department said it would only guarantee funds that were in the accounts as of last Friday, indicating that money deposited after that date would not be guaranteed.


The guarantees had been put in place to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.

But the banking industry had complained that the new guarantees ran the risk of sparking withdrawals by their savings depositors who might decide to transfer their bank deposits, which are government-insured, to money-market mutual funds, which often pay more in interest than bank savings accounts but up until Friday had not enjoyed any government guarantees. The American Bankers Association praised Treasury's about-face. "By limiting this new guarantee to funds that existed on or before last Friday, they have eliminated the incentive for people to move money out of bank accounts to seek a higher government guarantee," ABA President Edward Yingling said in a statement."

A clear warning for daytraders who may swap in and out of funds daily!

[The Outback Oracle]

The scary thing is this...these clowns implemented this without evening thinking about it! The announcement was about about 5 mins and some odd lot ituliper asks the important question.
After a few days we have an amendment to fix the issue!!!!:mad:

[grapejelly]

isn't it amazing that the government can enact a sweeping guarantee of trillions of dollars without so much as a whisper.

[Jim Nickerson]

Looks like I was not the only one thinking about that. They changed the rules again:

http://biz.yahoo.com/ap/080921/financial_meltdown.html

"On Friday, the government said it would use a $50 billion Treasury fund to provide government guarantees for money-market mutual fund accounts. However, in a significant revision announced late Sunday, the Treasury Department said it would only guarantee funds that were in the accounts as of last Friday, indicating that money deposited after that date would not be guaranteed.


The guarantees had been put in place to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.

But the banking industry had complained that the new guarantees ran the risk of sparking withdrawals by their savings depositors who might decide to transfer their bank deposits, which are government-insured, to money-market mutual funds, which often pay more in interest than bank savings accounts but up until Friday had not enjoyed any government guarantees. The American Bankers Association praised Treasury's about-face. "By limiting this new guarantee to funds that existed on or before last Friday, they have eliminated the incentive for people to move money out of bank accounts to seek a higher government guarantee," ABA President Edward Yingling said in a statement."

A clear warning for daytraders who may swap in and out of funds daily!

Here is a piece by Ambrose Evans-Pritchard, the Telegraph http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/22/ccambrose122.xml in which he discusses America's rising to the occasion by virtue of the unprecedented acts by our appointed Federal bank and treasury goliaths. Actually it seems a rather sanguine assessment on the predicament in which we are.

One thing he wrote, whether correct or not I don't know, is that American money market funds total 3.7 trillion bonars. So what type of protection would that offer if all the money market funds lost value so that they returned less that a 1$ per share? If I got my zeros correct, it would make whole all these 3.7Trillion in MMF if they lost down to .98648.

I don't know really what sort of protection a 50B guarantee offers MMF's.

[metalman]

Here is a piece by Ambrose Evans-Pritchard, the Telegraph http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/22/ccambrose122.xml in which he discusses America's rising to the occasion by virtue of the unprecedented acts by our appointed Federal bank and treasury goliaths. Actually it seems a rather sanguine assessment on the predicament in which we are.

One thing he wrote, whether correct or not I don't know, is that American money market funds total 3.7 trillion bonars. So what type of protection would that offer if all the money market funds lost value so that they returned less that a 1$ per share? If I got my zeros correct, it would make whole all these 3.7Trillion in MMF if they lost down to .98648.

I don't know really what sort of protection a 50B guarantee offers MMF's.

your maths look good to me. preparing for a 5% haircut is more prudent. if 95 centavos on the bonar then 5% of 3.7 trillion bonars = 185 billion bonars not 50.

[The Outback Oracle]

Cheesh!!! I'm having a bad afternoon!!!! Dear oh bloody me!! They are guaranteeing the thing for a 1.5% haircut....the bloody inflation they cause in the process will knock 20 bloody percent off it in one year....which they don't guarantee!!!!!!!!!!!!!! What's the word i ought be using...obfuscation! A bit too diplomatic methinks for this load of balderdash!
Lucky Johnny bloody Howard took away the bloody guns over here!!!!!!!!!

[kingcopper]

I was under the impression that this was the prefferential source of short term cash for the creation of all the failed sivs and that Paulson and Bernacke were warning the senate last week about the FEARED event on the horizon. I'm sure the fear for the senate was being REELECTED!