The dominoes are falling fast on Wall Street. It's not just a bunch of hedge funds that lent money to semi-defunct Lehman Brothers - mom and pop mutual funds are owed billions. On Tuesday the first money market mutual fund in over a decade announced it has 'broke the buck'. This collateral damage from Lehman is likely why Uncle Sam is now writing blank checks to AIG.
You may want to refill your Ambien prescription before you read this New York Times article about the mess:
The announcement was made by the Primary Fund, which had almost $65 billion in assets at the end of May. It is part of the Reserve Fund, a group whose founder helped invent the money market fund more than 30 years ago.
The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested.
This is only the second time in history that a money market fund has 'broken the buck' — that is, reported a share’s value was less than a dollar.
This year alone, big banks and fund management companies have pledged more than $10 billion to rescue affiliated money funds that were caught holding mortgage market securities that were deteriorating rapidly in value...
The Primary Fund reported that, until further notice, it would delay paying redemptions to customers for up to seven days, as permitted under mutual fund law. That delay will not apply to debit card transactions, automated clearinghouse transactions or checks written against the assets of the Primary Fund, provided that the transactions do not exceed $10,000 from single or affiliated investors...
Several industry analysts said on Tuesday, however, that the Reserve Fund’s action came after its Primary Fund was hit by heavy redemption demands that intensified the impact of the Lehman losses."
Of course, the fund company trade association assures us that money market funds are sound...
The dominoes are falling fast on Wall Street. It's not just a bunch of hedge funds that lent money to semi-defunct Lehman Brothers - mom and pop mutual funds are owed billions. On Tuesday the first money market mutual fund in over a decade announced it has 'broke the buck'. This collateral damage from Lehman is likely why Uncle Sam is now writing blank checks to AIG.
You may want to refill your Ambien prescription before you read this New York Times article about the mess:
The announcement was made by the Primary Fund, which had almost $65 billion in assets at the end of May. It is part of the Reserve Fund, a group whose founder helped invent the money market fund more than 30 years ago.
The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested.
This is only the second time in history that a money market fund has 'broken the buck' — that is, reported a share’s value was less than a dollar.
This year alone, big banks and fund management companies have pledged more than $10 billion to rescue affiliated money funds that were caught holding mortgage market securities that were deteriorating rapidly in value...
The Primary Fund reported that, until further notice, it would delay paying redemptions to customers for up to seven days, as permitted under mutual fund law. That delay will not apply to debit card transactions, automated clearinghouse transactions or checks written against the assets of the Primary Fund, provided that the transactions do not exceed $10,000 from single or affiliated investors...
Several industry analysts said on Tuesday, however, that the Reserve Fund’s action came after its Primary Fund was hit by heavy redemption demands that intensified the impact of the Lehman losses."
Of course, the fund company trade association assures us that money market funds are sound...
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See also: Can Money Market Funds Fail?