Bernanke Warns Of Risks In Money-Market Funds

Wall Street Journal ^ | 4/9/12 | Kristina Peterson and Michael S. Derby

[advance_copy]

More regulatory action may be needed to safeguard the money-market mutual-fund industry, Federal Reserve Chairman Ben Bernanke said in remarks prepared for a speech on Monday night, putting his weight behind other officials who want to toughen oversight of the $2.7 trillion industry.

In an address largely focused on scrutinizing murky corners of the financial system, the shadow banking system, Bernanke emphasized the need to establish regulations that protect the system as a whole from the risks that threatened it during the financial crisis.

The money-market mutual-fund industry remains prone to destabilizing panics even with new regulations already in place, Bernanke said in a speech at a conference hosted by the Federal Reserve Bank of Atlanta in Stone Mountain, Georgia. "The risk of runs created by a combination of fixed net asset values, extremely risk-averse investors and the absence of explicit loss-absorption capacity remains a concern," Bernanke said in his remarks.

During the financial crisis, the Treasury Department and Federal Reserve headed off a rising panic by vowing to backstop all money funds after a large money fund with exposure to Lehman Brothers Holding Inc.'s debt "broke the buck," which happens when a fund's net asset value falls below $1. The Securities and Exchange Commission imposed rules on the kinds of investments that money funds could hold in 2010 and SEC Chairman Mary Schapiro has advocated for additional measures, which Bernanke said Monday night may be necessary.

[advance_copy]

***WARNING***DANGER***THREAT***URGENT***

Folks, stuff is about to hit the fan. This going to make 2008 look like a cake walk. Those "in the know", including Bernanke, Bair, Geithner, etc. are in CYA mode. Just google their comments/opeds in the last few days.

The big ones on Wall Street, I mean the too big to fail ones, have got themselves even deeper in the credit default swap game and it's about to blow. When chairman of the Fed says "more regulatory action may needed", that can be translated directly into English. It means: BOHICA!!! TEOTWAWKI!!!

Man, it is already happening. Bloomberg is reporting on JP Morgan Chase and their CDS trades that are sparking HUGH interest from the feds. I would not give you two cents for a share of JP MC right now. In fact, if I had any, I'd pay you to take their shares from me.

But they're "too big to fail", right? Wrong! There will be no more bailouts. A big ole bank like JPMC gets themselves deep into CDS and they are gonna stink. You don't just come up smelling like roses.

If you live in NYC, move outta there!!! When this is done, there ain't gonna be nothing up there worth looking at.

[SunkenCiv]

Thanks advance_copy.

[El Gato]

Yea, and the US Federal government’s credit rating was just downgraded.. again. That’s twice for O’Bummer, never for anyone else.

So what is the government going to do? Borrow more money and make everything that much worse? Yea, that’s probably what they’ll do. It’s what Bush did in ‘08, and what The Won doubled or tripled down on.

Yea, it’s gonna blow, but the government can only make it worse by any direct action they could take. They could get out of the way, but they won’t. No votes in that.

[what's up]

The pending collapse of money-market funds is what prompted Bernanke-Paulsen to move at lightening speed to get TARP in '08.

The pain of Wall Street almost spilled over to the "real economy" (money markets) which would have resulted in runs on banks and a depression.

Interesting that Bernanke commented on the money market funds today.

[hosepipe]

“Don’t you dare get all white on us and go out there seeking PROFIT!! “- Bernanke

[Seaplaner]

"Bernanke Warns Of Risks..."

He outa know, he's partly (or perhaps even largely) responsible, n'est ce pas?

.

[razorback-bert]

It reads like a repeat of LTCM, I just finished a book on LTCM.

[razorback-bert]

It reads like a repeat of LTCM, I just finished a book on LTCM.

[Sequoyah101]

Commodities will ZOOM again, more.

Funny money and not funny reality isn’t it?

We are well and truly screwed.

[NVDave]

TARP was just the “tip of the iceberg.”

The scare on Wall Street went into high gear after Lehman collapsed, but it went into sheer hysteria when a money market fund, known as “Reserve Primary Fund,” with holdings of about $65B, marked their NAV (net asset value) to $0.97 as a result of the Lehman implosion. Lehman sold a lot of corporate short-term debt, which had been bought up by various money market funds in the past.

Now, some additional information on Reserve Primary Fund: It’s the nation’s oldest money market fund. By “breaking the buck” (ie, going below $1.00 NAV), Reserve Primary caused a stampede out of money market funds into short-term Treasury debt at a breathtaking pace between September 15 to 16, 2008.

By Friday, Sep. 19, 2008, the Treasury was guaranteeing retirement funds in MMF’s up to $250K, and stood ready to stopgap up to $50B of MMF’s for losses.

And then the bailouts really got going, with TARP and all manner of Fed asset-swap programs.

Now, why is Bernanke running his gob about MMF’s today? I think this has something to do with it:

http://www.reuters.com/article/2012/03/29/reserve-sec-idUSL2E8ETAM120120329

I think some dirty laundry is about to be aired.

[Son House]

"The risk of runs created by

a combination of fixed net asset values,
extremely risk-averse investors and
the absence of explicit loss-absorption capacity

Anyone wish to elaborate on anyone of these 3 points?

[Son House]

"The risk of runs created by

extremely risk-averse investors

Less disposable income? Fewer jobs? Inflation?

[Son House]

"The risk of runs created by

the absence of explicit loss-absorption capacity

What's this mean?

[Son House]

Instead, Reserve Primary became the second money fund to fall below $1 per share, known as "breaking the buck," when its share price dropped to 97 cents on Sept. 16, 2008.

The fund had held $785 million of Lehman debt. Its collapse was a key driver of the credit market seizure that followed Lehman's demise. New regulations have since reduced the credit and maturity risks that money funds may take.

There's a clue here...