August 21, 2007

Think you're safe putting your cash into money market funds? Think again - they're CDO mortgage investors, and they ain't FDIC insured

The biggest problem with the CDO con-game is that S&P and Moody's hilariously gave this toxic loan cancer AAA or investment grade ratings, so "safe" funds (money markets, pensions, etc) could barrel in.


Oops.

"Cash is King" means one thing. But damn, if cash isn't safe (goodbye dollar) and money markets aren't safe (hello subprime), every asset class is being liquidated to raise cash, and even gold is dropping (hedge fund selling to pay debt) then it's getting tougher and tougher to find safety. Watch the US T-bills be the last island, which in itself is kinda funny since we're $50 trillion in the hole and essentially bankrupt.

Amazing. Good luck out there.
Aug. 20 (Bloomberg) -- Money market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.

Unlike bank accounts, money market funds aren't insured by the federal government. They almost never fail.

Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations backed by subprime mortgage loans.

Under SEC rules, money market managers must invest in securities with ``minimal credit risks.'' Joseph Mason, a finance professor at Drexel University in Philadelphia and a former economist at the U.S. Treasury Department, says subprime debt in money market funds is far from safe.

``This creates tremendous risk for today's money market investors,'' says Mason, who wrote an 84-page report on CDOs this year. ``Right now, I'm not comfortable investing anything in CDOs.''

23 comments:

Anonymous said...

Stupid question: Does anyone in the corrupt MSM has the balls to confront Bernanke about his repetitive assurances that the subprime mess was contained? Also, he said that inflation was the main priority two weeks ago, so no need to lower the Federal rates to bail out crooks and gamblers, right Bernanke? Everybody acts like Bernanke never said that as earlier as 2 weeks ago, right? Oh boy, this country is going down so fast...I tell you what baby boomer geniuses, why don't you all vote Giuliana or any other of those GOP idiots into office as the last nail in your coffins.

Now back to bombing some Iraqi kids and their mothers...nothing to see here, selfish and greedy warmongers.

russdog777 said...

I noticed Vanguard MMF has more sense than to be suckered into this junk. That's looking reasonably safe to me- you think?

"" Vanguard Group Inc., the second-largest mutual fund company in the U.S., has a policy of never buying CDO commercial paper for its $90 billion in money market funds or $325 billion in fixed-income mutual funds.

``It really gets down to transparency questions,'' says John Hollyer, risk management director at Valley Forge, Pennsylvania-based Vanguard. ``Can you understand what you have? And can you measure it appropriately? We haven't been comfortable that we could.'' ""

Thanks for any of your opinions.

Anonymous said...

Free healthcare for everybody will solve the country's problems. Bring us your drug addicts, fat lazy slobs, and slackers liberal morons, so we can spend our tax dollars to make them well so they can continue to destroy their bodies again. Barrack hussein Obomba will cure us all

Illegals Everywhere said...

It may be a good time for someone with banking experience to explain any difference between regular Money Market Savings accounts at your local bank and Money Market Funds e.g., Vanguard, Goldman Sachs etc…

Anonymous said...

Sweet Irony: Debt is good. Borrow against your 401k and all the interest goes back to you. Use the money to pay off other interest bearing debt (interest that does not go back to you)

PLUS as you repay the loan you will maintain good credit and realize a better return (by paying yourself the interest) than you would have seen in the market.

SPECTRE of Deflation said...

Sentinel Bagholders:

Discus Master Limited
British Virgin Islands
Trading LSIII
Turks & Caicos Islands
IFX Markets Inc. House Account
London
SWM Trading Company, Inc.
Chicago, IL
Jump Trading, LLC
Chicago, IL
JEM Commodity Relative Value Fund
Portland, OR
Rotchford L. Barker Rev. Living Trust
Cody, WY
BC Capital Fund A, LLC
Corning, NY
Lakeshore Alt Financial Asset Trading 2
Turks & Caicos Island
2100 Capital Multi-Strategy Master GlobeOP Financial Services
Grand Cayman, Cayman Islands
BC Capital Fund B, LLC
Corning, NY
Sentinel US Liquidity Fund, Ltd.
New Providence, NP
Dighton UTG Fund SPC obo Aggressive Portfolio
Grand Cayman, Cayman Islands
Sentinel Bank & Trust Limited
Nassau, NP
Leviathan Diversified Fund 3XL
Los Altos, CA
Lake Shore Alt Financial Fund IV Ltd. Trading
Turks & Caicos Islands,BWI
Fortis Clearing Americas LLC
Chicago, IL
One York Property, LLC
New York, NY
Blueprint Partners LP
Austin, TX
Stone Capital Group, Inc.
Vernon Hills, IL

borkafatty said...

Scary indeed!..

Anonymous said...

Interesting ?

Some of our biggest wars were started by warmonger Dems!

Vietnam, our Biggest disgrace started with Kennedy and escalated by Johnson..........hmmmmm!

Love-that-Bush said...

"Cash is King" means one thing. But damn, if cash isn't safe (goodbye dollar) and money markets aren't safe (hello subprime), every asset class is being liquidated to raise cash, and even gold is dropping (hedge fund selling to pay debt) then it's getting tougher and tougher to find safety. Watch the US T-bills be the last island, which in itself is kinda funny since we're $50 trillion in the hole and essentially bankrupt."
=================================
Sounds like a replay of 1932, when Treasury yields briefly went negative.

Gen-Xer's better hope their beanie baby collections recover.

rcochran said...

Watch the US T-bills be the last island, which in itself is kinda funny since we're $50 trillion in the hole and essentially bankrupt.

_____

We are at the mercy of China to keep froming being insolvent.

Exlpore Wisdom said...

Informative article.

I have enjoyed your postings.

Keep Posting.

Anonymous said...

I moved all of my money out of FDRXX and into FDLXX last week. Also had Fidelity send me a check for 1/5 of my cash position. Debating whether to put the money in a safety deposit box or under the mattress. The best investment would doubtless be some booze and a few 8 balls. Too bad I don't do drugs.

Anonymous said...

"Free healthcare for everybody will solve the country's problems. Bring us your drug addicts, fat lazy slobs, and slackers liberal morons, so we can spend our tax dollars to make them well so they can continue to destroy their bodies again. Barrack hussein Obomba will cure us all"

"Some of our biggest wars were started by warmonger Dems!

Vietnam, our Biggest disgrace started with Kennedy and escalated by Johnson..........hmmmmm!"


Turret's syndrome is treatable, you know? Sadly, willful stupidity is not.

borkafatty said...

Too bad I don't do drugs.

---------------

The way things are looking you might want to reconsider...most of Amerika has from what I read in yesterdays News:
Prescription for Pain killers are at a all time High for Americans...

Go Figure.

Anonymous said...

A few weeks ago I decided to check out my money market fund (RiverSource Cash management fund) and found out that 8% of the fund is invested in short term debt issued by Bear Stearns, Goldman Sachs and Merrill Lynch.

I immediately moved all my cash out of this account and put it into a US Treasury fund (no agency debts).

It cost me about 1% yield, but I feel it's worth it in this environment.

Jymkata.

Anonymous said...

So where do you put your money now that the US dollar will be worthless?

Cheap Skate said...

Glad I ran with Vanguard!

Virginia Resident said...

I'm investing in firearms.

As soon as my wife goes on vacation.

Anonymous said...

I will eventually get back into stocks, but for now, I have my entire 401K balance in the cash/stable value option of a 10 Billion dollar fund at a well known brokerage.
Looking through the prospectus I see the fund has investments in such names as Pulte homes, Capital One, Bear Stearns, Countrywide, etc...

My 401K does not offer a Treasury money market. It offers standard stock funds,stock/bond funds, international and emerging market funds, Pimco Total Return, a junk bond fund, and a REIT.

The cash/stable value fund seems the least bad option for now.

Any comments or suggestions?

Anonymous said...

Don't forget that little skermish called WWII,

brought to you by.....Roosevelt


a DEM!


checkmate

HappyBoomer said...

Anonymous said...
Free healthcare for everybody will solve the country's problems.
==================================
Some sort of universal coverage and single payer would chop 30% or more of the US health care bill. So, yeah, its a great idea. The sooner the better.

Anonymous said...

First Magnus Financial Corp. filed for bankruptcy Tuesday, less than a week after the Tucson-based national mortgage lender suspended its operations.

http://www.baytownsun.com/
wire.lasso?report=/dynamic/
stories/F/
FIRST_MAGNUS_BANKRUPTCY?SITE=
TXBAY&SECTION=HOME&TEMPLATE=
blank.html&CTIME=2007-08-21-20-14-00

Anonymous said...

Money market funds don't invest in CDOs. They only invest in short-term paper.