Skip to comments.Money Market Safety Net Ending (guaranteed money fund deposits expires on Sept. 18, 2009)
Posted on 09/04/2009 6:46:53 PM PDT by SeekAndFind
Money funds, once considered a safe place to park cash, could become moderately risky again when the government program hastily initiated last year to guarantee money fund deposits expires on Sept. 18.
In 2008 the colossal Reserve Primary Fund, with $62.5 billion in its portfolio "broke the buck" when Lehman Brothers defaulted on $785 million in bonds which the fund held. Investor redemptions skyrocketed.
This prompted then Treasury secretary Henry Paulson's unprecedented intervention to protect all money market assets, approximately $3.5 trillion, and thus avert a panic, writes Joe Nocera in The New York Times.
"Here we are a year later and the money market fund business seems back to normal," Nocera writes.
"No other money funds have broken the buck."
But now the safety net is gone.
Accordingly, the SEC is proposing new rules for money funds, including stricter liquidity standards.
Some banks, in an effort to attract depositor dollars, are offering more than 2 percent on money market deposits better than an average non-bank money market yield of less than one percent with the usual FDIC guarantee up to $250,000, according to Kiplinger's Personal Finance Magazine.
Is this article saying that the once “safe haven” is not so much any more?
The panic is over, no more need for a government guarantee to prevent a run on the funds.
You are kidding right? I trust nothing in the financial markets with the Kenyan usurper in power.
The hedge funds run wall street so they can fleece individuals.
It’s over? I’d wait until the year was over before I’d start breathing a sigh of relief.
Are you afraid your money market fund will break the buck?
Any giant financial firms go bankrupt lately? Any money market funds break the buck lately?
I don’t think the story on the financial firms going bankrupt has been fully written yet. There are still many of problems out there—commercial real estate, unemployment, Obama is still president, 9/12 has not occurred, etc., but they are being held off briefly. The dam has yet to burst, IMO.
For sure, but the panic was the problem. It could come back, but for now.....it's gone.
For the moment.
The problems; too much debt and too many zombie banks (TBTF) has actually gotten worse since last September.
And the panic is a symptom of the disease not the disease itself.
I like your tagline; being a math guy myself so I ask you this what is the real networth of Citigroup? My contention is no one really knows but it is probably less than zero
Tha manufactured panic to help get Obama elected? Short hedge funds plus a big player like China or the Saudis who moved $500 billion that freaked Bush out.
I think people need to be very wary. This fall is not looking good at all.
Bear Stearns was making money, they were killed by a run on the bank.
I ask you this what is the real networth of Citigroup? My contention is no one really knows but it is probably less than zero
Why do you think it's less than zero?
Easy. Lack of mark to market accounting.
If banks were valuing their assets (loans) on a mark to market basis the write offs would be HUGE.
Now I started by conceding that I do not know the exact amount and no one does. The lack of transparency is why I have so little faith in the current market.
We should have never abandoned the 20% down rule. We are paying for it now and for the next decade.
The real panic that helped get Obama elected.
Short hedge funds plus a big player like China or the Saudis who moved $500 billion that freaked Bush out.
The Chinese and Saudis have $500 billion sitting in money market funds?
This fall is not looking good at all.
Maybe you should buy puts?
Very simple. Loan losses (not yet realized) probably exceed capital.
If I had to guess, I’d guess JPM and GS are the only big financials that are not underwater.
Sure, maybe the others might earn their way out of the hole before the day of reckoning but it is a shame that all that capital can’t go to productive activities including prudent banks instead of this long drawn out bailout and fraud.
I am short.
The only question in my mind is "am I too early" because the math never lies
This was interesting too, "Net interest margin in the second quarter of 2009 was 3.24%, up 7 basis points from the second quarter of 2008, reflecting significantly lower cost of funding, largely offset by a decrease in asset yields related to the decrease in the Federal funds rate and the FDIC special assessment of $333 million. Non-interest revenue increased $13.6 billion from a year ago, primarily reflecting the gain on sale of Smith Barney, lower write-downs and gains on exposures in Citi Holdings
Operating expenses decreased 21% from the previous year, reflecting benefits from Citi's ongoing re-engineering efforts, expense control, and the impact of foreign exchange translation. Headcount of 279,000 was down 84,000 from June 30, 2008 and 30,000 from March 31, 2009"
None of that disputes what I am saying.
That equity capital base reflects “mark to fantasy” accounting.
I’m also not surprised that their earnings are up, again see what I wrote about that too.
The allowance for loan losses totaled $24.0 billion at September 30, 2008, a coverage ratio of 3.35% of total loans.
That equity capital base reflects mark to fantasy accounting.
The marks during the panic were the mark to fantasy
No, those were the prices that the market was willing to bare at the time, and they really haven't gone up much since.
Let's just both bookmark this thread and come back in 6 months.
I used to think a lot like you, but then last September happened and I decide to reevaluate.
10-K reports & financial statements especially by banks are almost worthless anymore. Anyone remember what Sarbanes Oxley was? Fannie and Freddie were exempt.
For banks and pretty much the rest of the market - I would rather look at charts. The charts lie less than the “financial” statements.
Taking the loans on the books an giving them the appropriate haircut. Which is about 30% more or less.
You are absolutely right that the 10Q's etc. are worthless especially since this springs FASB 157 ruling.
Those were marks for panic sales, or no trades at all.
and they really haven't gone up much since.
But they really have. There is no panic selling, currently.
Their allowance for loan losses totaled $35.9 billion at June 30, 2009, a coverage ratio of 5.60% of total loans. And their net interest margin is 3.24%
Let's just both bookmark this thread and come back in 6 months.
Not a huge fan of techincals but we have to be overbought after the biggest and fastest rally since 1933.
There is just too much debt in the system and that will weigh down everything. Think Japan 1989.
I may move money out of U.S. banks and check out banks like TD and RBC Centura. Canadian banks are among the safest. We also have HSBC which may be okay too.
JPM has huge derivative exposure. I wonder if Mellon/PNC is okay or US Bancorp. Bank of NY too but do they do any consumer? Forbes said Wells Fargo should be okay too.
Agreed on both points. I used to be more into fundamentals buy there is too much lying in the financials. They are as bad as the Chinese or Indians anymore.
We are as corrupt as Russia anymore.
Wells is truly the sick man. I should have used them as my example with the Toddster than Citi.
US Bank might be OK.
Frankly the best domestic picks are local community banks and credit unions.
The regionals are the worst as they are too risky but yet do not have "too big to fail" protection.
I'm also no fan of PNC as they bought NCB that had all that toxic subprime North Carolina Real Estate.
Ain't that the sad truth.
Yeah I figure BOM was an avoid due to leftist Quebec.
Buffett is a big shareholder in Wells so I don’t like them. The CEO is pretty good - his family owned a financial/bank company that actually merged in and took over Wells. I forget their name it was midwestern.
Local banks and CUs but you have to check em out. Ditto on regionals. They took almost the same risks as the big dog sh*t mega banks or money centers.
I thought PNC bought Core States and First Union/Wachovia bought NCNB but I could be wrong.
Boy Wacovia which had also been Bank Atlanta was really ruined when it became part of First Union.
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