"Can I hasz mine moneys back puleezuh?"
No, youse haz bean hazzed.

Umm does this mean no pony?

All ponies have been drafted to carry cash to the helicopters.

Jezz, any idea who the clients are, if widespread and held by J6P not going to be be good for confidence. $62B is not a pipsqueak operation either.

FT.com / Lex / Macroeconomics & markets - Fed up? Not yet

Few people taking a dollar out of their wallet ever stop to ponder what is engraved on top of every bill: “Federal Reserve Note”. This means that they represent the first claim on the collateral held by the regional Federal Reserve Bank that issued them. Even if the greenback’s buying power is not in jeopardy, the nature of that collateral has changed dramatically since the Fed started throwing lifelines to investment banks.

A snapshot of the Fed’s balance sheet last August, for example, showed $784bn in Treasuries making up about 90 per cent of assets. These were offset by liabilities like $775bn of currency. A similar snapshot last week showed that over $300bn of those Treasuries had disappeared to make way for various auction facilities holding investment grade assets.

While only the naïve put much stock in credit ratings these days, the Fed’s widening of its standards to include junk debt – and allegedly even equities – in its Primary Dealer Credit Facility, and to accept any investment grade securities in its Term Securities Lending Facility, represents a major deterioration in collateral quality. It is a sign of desperate times. Allowing banks to lend to their own broker dealers is another radical move; now grandma’s federally-insured savings account can partially back exotica like synthetic CDOs...

I think I saw your blanket on the pony you were promised...

The Bush Boom is at hand! Buy now or be forever priced out.
Mission Accomplished! Bring em On!

Here we are having to sell our house to save a piece of family history and this happens to crash not only Wall Street (and part of our income stream) but our housing market. The little favored piece of the world we live in has been immune, so far, to the housing crash but now I don't think so.

But, to make you all happy just think how bad it would have been if Al Gore had been selected in 2001. God! Eight more years of peace and prosperity would have been disastrous.
Count your blessings.

Also I just learned that McCane invented the Blackberry and Al only invented the internet. What the hell would be have ever done with out the Blackberry?

The problem with a 401 K loan is you pay back the interest with after-tax dollars, and will be taxed on that money again at distribution. It's not a huge factor but is significant.

Everyone takes a 3% haircut for maintaining the illusion of a free market and enforcing the quaint notion of moral hazard. We sure showed those bastards at Lehman. The law of unintended consequences.

Drip. Drip. Drip. Stupid Russians and their oil and gas, we'll show them who's superior. No oligarchs here, just us mice.

This is what financial cataclysm means folks. It's like, all cataclysmic and shit.

Anybody know any good web resources on Chinese informal banking? The Treasury used to have a good essay.

Mike in SD,

I'm not too sure about Fido's "retirement" "government" fund. Had my 401k in there until I read the fine print. Sounded like GSE bonds to me.

Now in Vanguard's Treasury MM fund. Hope you have other options. Also hope you don't need them.

The problem with a 401 K loan is you pay back the interest with after-tax dollars, and will be taxed on that money again at distribution. It's not a huge factor but is significant.

Only the interest portion of the 401k loan is double-taxed.

Rich, that's exactly what I said.

Ok boys enough of this moral hazard stuff, time to place LEH into conservatorship....oh....sorry....what...did I miss something???

Tanya Stafel writes:
has this ever happened before in the history of money market funds?

Anonymouse sez:
Yes.

But only once, and only kind of. The 'investors' were made whole; I put that in quotes because, like many of the Term Auction suckers, people were convinced that it couldn't happen, it was so safe. The difference here, well, $62 big boyz is a lot to take 3% of, and more than likely, it's only the first cockroach.

Some smart dude this weekend predicted right here that this would be the week that breaks the buck in a MMF. [Pats self on back.]

Doesn't sound like a bad idea at this point, even if all i did was to stash a pile of $100 bills under my mattress.

Some advice. I don't make any judgments on being all cash or whatever. But, here is some advice for people who are feeling like it's the end of their epoch.

Give it to people you trust. Number one use for cash, paying the arbitrary fines / bribes that are keeping you locked in jail.

You don't want too much of it near you if it's your nut, it's exposed to theft and disasters and seizures by the constant Iraq-style police raids you'll soon be subjected to.

Spread it out in packets here and there with people you are down enough with you can trust them with large bills. If you don' have friends like that, let me identify the number one problem in your life as of this moment if you think the economy is about to get jacked into total Road Warrior oblivion.

Also, historically, the one investment people can trust is other human relationships. Nobody but the other participant in the transaction can devalue that. Economic and social patronage and gifting to buy friendship are your best friends if you think the currency is going to be worth nothing.

Investing in people keeps the capital productive and producing whatever the unit of worth is at the time of wealth production.

Please don't think this speaks to endorsing any sort of lunacy you conceive of or come to me crying because someone ripped you off for three grand. This is provided for informative purposes only.

Don't Panic!

But if you do, Panic First!

That should have been "FDIC Insured" Remember TDA is owned by Toronto Dominion Bank, so it seems they are running their own captive MM account.

I was taking a look at Fidelity's Select Money Market Portfolio(FSLXX) and saw these entries from Feb 08

Lehman Brothers Holdings, Inc.
3/10/08 to 6/30/08
3.28 (c)(e)
8,000,000
8,000,000

Lehman Commercial Paper, Inc.
3/3/08
3.58 (c)(e)
11,000,000
11,000,000

AIG Matched Funding Corp.
3/3/08 to 5/20/08
3.31 to 4.98 (b)(c)
52,000,000
52,000,000

5/15/08
3.06 (c)
16,000,000
16,000,000

Lehman Brothers, Inc. at:
3.3%, dated 1/29/08 due 4/29/08 (Collateralized by U.S. Government Obligations valued at $26,599,492, 6%, 12/20/37)
26,216,883
26,000,000

3.35%, dated 2/29/08 due 3/3/08 (Collateralized by Municipal Bond Obligations valued at $278,253,053, 0% - 11.11%, 10/1/09 - 6/1/49)
265,073,869
265,000,000

4.6%, dated 1/7/08 due 4/8/08 (Collateralized by U.S. Government Obligations valued at $12,325,803, 5.5%, 1/15/37)
12,141,067
12,000,000

You do realize that AX is being redone.

Products and Services Overview 

I guess the interest in a product that is only worth 6 cents on the dollar is pretty shabby.

Someday this war's gonna end...

I'd better check my accounts .

PerhapsMaybe writes:
Great that is who TD Ameritrade uses for it cash deposits.
PerhapsMaybe | 09.16.08 - 6:08 pm | #

Kung Fu Panda

Yep, short term treasuries ...

Be liquid when the dollar slides...

Mike in SD
And your 7% interest goes back into your account also. So you are paying yourself interest!

homedad43 writes:
Mike in SD:

The difference is taht if it's Government MM, then they're putting it into treasuries and not the Lehman style Commercial paper.

not necessarily in treasuries, it might be other government securities. Granted they are probably Fannie/Freddie's, but you still might want to read your prospectus before you make assumptions about a Federal Gov't MM.

Some months ago (before the Fannie/Freddie bail out) I found out that my Fed Govt MM account at Fidelity was invested about 40% in Fannie and Freddie.

It's best to be paranoid.

malabar

if thats the right graph why is it going down?

Use the link CR provided, you'll see that the haircut was only 3%. That's a lot smaller loss than in other asset classes.

That's only the current NAV...

The problem is that when the redemptions start comming in they will have to sell the most liquid and high quality assets first. That leaves the remaining investors with a bigger pile of stink until the last investor out is left holding the stuff that can't be sold.

This means that money market funds are similar to banks in that once a run starts it's pretty much impossible to stop. And there is no FDIC insurance, just a cross-my-heart promise of liquidity (and we all know what that's worth these days). That's why redemptions are frozen, the run is guaranteed and they are trying to figure out the best way to liquidate.

Most likely the fund will sell what high quality assets it can at par and cash out a percentage and then freeze the rest until it matures (or doesn't). The total loss won't be known for a while.

And this is a 3% loss on Money Market Fund! These funds cover payrolls and paying the day-to-day bills. What CFO is going to want to risk walking into the board and telling them they can't pay bills because their MMF has halted redemptions?

Now, the problem is if this starts a run on the entire industry. There is ~$3.5 trillion in money market funds. It can't be moved into the banks, there isn't enough capital. It can't be moved onto the Fed's balance sheet because MMFs don't have access to the discount window. There aren't enough Treasuries if everybody starts to duck for cover.

That's why BB was talking to the MMF a few months ago when the SIVs froze.

It used to be that The Reserve family of funds was the only money-markets TD Ameritrade offered for sweeps of cash balances in your brokerage account. The expense ratio of the plain vanilla Reserve Fund money market fund, if I recall correctly, was high--somewhere between 0.75% and 1.00%

But I don't understand why people can't cash in their shares of the $3.5 trillion industry-wide in money market funds and put it in banks instead. The banks can sure use the money. Are you implying that the $3.5 trillion isn't really there anymore?

Troy, underneath that you should see something like "depending on your account balance, you may be eligible for other cash management choices. Call your account representative for further information." That's when you find out about the Reserve fund.

Been trying to get my money (not much there happily) out of a TIAA/CREF money fund without much success. Asked for a check via the website a couple of weeks ago with no result and no reply. Wrote a letter asking for the money. No result so far. I am getting a bit suspicious.

In the mid-1800s the corporation emerged as a legal "person." Imbued with a "personality" of pure self-interest, the next 100 years saw the corporation's rise to dominance.

The operational principles of the corporation give it a highly anti-social "personality": it is:
1. self-interested
2. inherently amoral
3. callous and deceitful
4. it breaches social and legal standards to get its way
5. it does not suffer from guilt, yet it can mimic the human qualities of empathy, caring and altruism.

Concluding this point-by-point analysis, a disturbing diagnosis is delivered: the institutional embodiment of laissez-faire capitalism fully meets the diagnostic criteria of a "psychopath."

The Corporation Film: About the Film

But I don't understand why people can't cash in their shares of the $3.5 trillion industry-wide in money market funds and put it in banks instead. The banks can sure use the money. Are you implying that the $3.5 trillion isn't really there anymore?

You've got the funny notion that money is something that you can take out of a bank. By law, legal tender in the United States is bank debt.

So, when you own shares of a money market fund you really don't have legal tender, you have an asset. The asset is easily convertible into legal tender (bank debt). It may be so easy to convert that people may forget they hold an asset instead of legal tender.

The problem is that in a credit crunch banks can't create more legal tender. By regulation and international agreement banks have to have a certain ratio of equity or capital for the amount of legal tender they create. The only exception to this rule is the Central Bank which can create legal tender with zero capital.

Now, when banks become capital constrained (because of losses) the amount of legal tender becomes fixed. Somebody who wants to covert their assets to legal tender must sell those assets to somebody who has in-the-bank money. Usually that means lower asset prices.

Now, how do you convince somebody with in-the-bank legal tender to buy the shares of a MM Fund when everybody else is trying to sell out of the same fund? In the stock market, prices drop until it attracts buyers. But, the shares of a MM Fund aren't supposed to drop in price.