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Thread: if you have cash in a money market fund, please read this quickly !!!

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    Default if you have cash in a money market fund, please read this quickly !!!

    (snip)"When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Great Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

    Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law. "(snip)

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    Featured Member minnow's Avatar
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    Default Re: if you have cash in a money market fund, please read this quickly !!!

    This article seems to apply to the mutual fund money market accts. Wondering if proposed change mentioned in article would apply to:

    1) Tax Exempt Money Market Mutual Funds

    2) The so called "Money Market" accts. in regular banks.

    Those so called accts. in #2 require a minimum deposit to get those kind of rates. There is a limitation on the number of withdrawls one can make per month (generally 3-6). These accts. also fall under the purview of FDIC insured accts.

    With the "money market" verbiage being widely tossed around, curious of relevant applicability of articles rules.
    I'm right 96% of the time. I don't sweat the other 5% .......................

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    Default Re: if you have cash in a money market fund, please read this quickly !!!

    ^^^ since the Securities and Exchange Commission is involved, I would assume that the same new ruling would apply to tax exempt money market accounts ( which are actually comprised of short term muni bonds and notes ). As to 'Bank' money market accounts, I would imagine that any such account which falls under the FDIC instead of the SEC / SIPC would NOT be bound by a new SEC ruling. However, various bank and credit union money market accounts could either be SEC / SIPC based or FDIC based ... meaning that somebody will have to check the 'fine print'. In general, higher rates of interest are paid on SEC / SIPC based money market accounts since these are 'allowed' to deal in gov't paper as well as commercial paper and corporate paper.

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