Posted on 08/28/2009 11:36:57 PM PDT by FromLori
In all the inevitable hoopla surrounding the coming anniversary of “Lehman weekend” — those fateful days in mid-September 2008, when the financial world seemed on the brink of collapse — here’s an important event that will almost surely be overlooked:
On Sept. 18, just a few days after the anniversary, the Treasury Department will end a program that essentially gave the same kind of protection to money market investors that the Federal Deposit Insurance Corporation gives to bank depositors. The government guaranteed that investors wouldn’t lose a penny.
When the program was instituted a year ago, you’ll recall, the Reserve Primary Fund, a $62.5 billion money market fund, had “broken the buck.” With $785 million in defaulted Lehman bonds in its portfolio, it had been unable to maintain the $1 share price that has long been a priority for money market funds, falling to 97 cents. Investors, who had long viewed money market funds as the equivalent of a bank savings account, raced for the exits.
Henry M. Paulson Jr., the Treasury secretary at the time, rammed through the guarantee in part because he wanted to quell investor panic, which he feared would spread like a contagion to other money market funds. And since money funds are big buyers of commercial paper, he also wanted to prevent the commercial paper market from freezing up, with devastating consequences. With $3.5 trillion in assets, money market funds had become a critical component of the shadow banking system.
(Excerpt) Read more at nytimes.com ...
Dear Lord.. Lets just spend everything we have before it disappears into thin air again!
This reminds me of what a close call I had in July of 2008. I had a lump sum that I was looking for a place to stash so it would work for me. The investment advisor at Chase was trying to get me to put half into money market and the other half stocks. I asked him about what had been going on with the banking industry and he said that it had been a little bumpy, but everything would be fine. Sure, Money Market is the safest thing around. He wasn’t a very good liar. He hesitated a little before he spoke about it, and there was just something about his body language that didn’t seem right.
I grabbed my money and ran. It went right into the trusty hands of the First Bank of Home Wallsafe waiting to be used to buy gold.
The next month is when all the craziness started and I felt like I had just missed a brush with fate.
Odd, isn’t it.
After reading warnings posted here at Free Republic, I convinced my elderly father into rolling over his stock-invested IRA into a Certificate of Deposit at a bank in early August 2008. Good thing, too. He lost nothing, in fact has a 4% gain. And yes, we’ve bought gold bullion and silver bullion both.
At the same time we’ve been buying and stocking up on food and items that can be bartered for essentials. Ammunition, soap, razors, and toilet paper are always good for trading.
Most of the 401k’s out there have only the options of money markets, bonds or stocks. That being said, if money markets are no-longer safe, then kiss this country goodbye....savings will evaporate in retirement.
I don’t think we’ve hit that cross street yet, and I tend to think we won’t.
No, those 401K's will be snapped up and absorbed into the federal budgets and will be replaced with US guaranteed treasuries.
www.goldmoney.com
This is an interesting company. Pretty much outside the banking system, and the gold itself, not a claim on gold, is legally yours.
Gold, as measured by dollars, can go down, of course, way down, for months or years. The long term down trend in the dollar, though, has been in place for many decades.
ping for later
I agree. I have some physical gold, and some money in GLD, which seems to me might have more protections than giving your money to this company. GLD makes the same claim. The difference to me is that at least GLD is subject to the SEC and all their stringent regulations, which is at least something.
If you get screwed by this website company, I feel realistically, you have little to no recourse.
Excellent article. Thanks very much for posting it!
Your welcome I wanted to warn people since I believe there will most likely be another run on the banks.
How close do you think we are?
The more salient point of the article is that regulators need to rethink the structure of MMFs. The author is right on that we need to explicitly acknowledge that they are risky, and they need to do mark-to-market accounting. There should be no taboo against "breaking the buck." There needs to be an honest reporting of their net asset values.
The current regime where they avoid breaking the buck at all costs is dishonest and leads to all kinds of moral hazard problems.
Really hard to say with all the covering up of the ponzi scheme it may well last a bit during the last Depression people kept being lulled into thinking everything was ok but I worry about October ?
That would depend upon the answer to this question:
What if any is the difference between the FDIC Insurance offered on a money market account in:
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