Think your money market funds are a nice safe places to park your cash? Wrong. Be afraid. Be very afraid.

Guess who was one of the biggest investors in toxic SIVs and CDOs?

Money market funds.

Your money is not safe in these safest of safe funds. Get it out. Now. If you need to park cash, get it into FDIC insured accounts or US t-bills that even though the dollar will devalue, unlike money market funds you won't lose your principle.

Do it today. You'll be glad you did.

GE Money Fund Breaks the Buck; Others Scramble to Cover Losses

A short-term institutional bond managed by General Electric Asset Management suffered such extreme losses from mortgage and asset-backed securities that it has offered investors the option of redeeming their holdings at 96 cents on the dollar.

Bank of America Corp. (BAC), and others, are reportedly propping up their money-market funds in a frantic effort to cushion against possible losses on debt issued by structured investment funds.

HousingPANIC Quote of the Day

"This will go down as one of the biggest financial illusions the world has EVER seen"

- Randall W. Forsyth, writing in Barron's - Aug 2007


For you wonks, here's a bit more from the Barron's piece, care of WC:

How did this all come about? A (bearish) hedge-fund operator, in a letter to his investors, describes how a senior Wall Street marketing director recounted the genesis of the current situation:

"'Real money' (U.S. insurance companies, pension funds, etc.) accounts had stopped purchasing mezzanine tranches of U.S. subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to 'mark up' these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!!

"He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the 'excess' pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt... until now."

These investors then had standing orders on Wall Street desks for any U.S. debt rated triple-A. Through the "alchemy of CDOs" and "the help of the ratings agencies," the CDO managers collected triple-B and triple-B-minus subprime and repackaged them so the top tier got paid out first. Then leverage the lower mezzanine tranches by 10-20 times and, "POOF... you magically have 80% of the structure rated 'AAA' by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets."

The letter concludes: "This will go down as one of the biggest financial illusions the world has EVER seen."

FLASH: Bear Stearns Tells Hedge Fund Investors There's `No Value Left'

Ruh-roh! Mark to market anyone? Anyone?

You gotta wonder how many more "suprises" are out there

Hint: Lots.

July 18 (Bloomberg) -- Bear Stearns Cos. told investors in its two failed hedge funds that they will get little if any money back after ``unprecedented declines'' in the value of AAA rated securities used to bet on subprime mortgages.

Estimates show there is ``effectively no value left'' in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and ``very little value left'' in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter. The second fund still has ``sufficient assets'' to cover the $1.4 billion it owes Bear Stearns, according to the letter, which was obtained yesterday by Bloomberg News from a person involved in the matter.

``This is a watershed,'' said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``A leading player, which has honed a reputation as a sage investor in mortgage securities, has faltered. It begs the question of how other market participants have fared.''

Bear Stearns provided the second fund with $1.6 billion of emergency funding last month in the biggest hedge fund bailout since the collapse of Long-Term Capital Management LP in 1998. The losses investors now face underscore the severity of the shakeout in the market for collateralized debt obligations, or CDOs, investment vehicles that repackage bonds, loans, derivatives and other CDOs into new securities.

Ralph Cioffi, the 22-year Bear Stearns veteran who managed the two funds, sought to minimize risk by investing in the top- rated portions of CDOs, hence the ``high-grade'' label. Under Cioffi, 51, the funds also borrowed money in an effort to boost returns. Instead, as defaults surged on subprime mortgages, they grappled with declines in the values of AAA and AA securities, Bear Stearns said in the letter.

Market Implications

``That has implications for credit weakness in the next several days and weeks,'' said Peter Plaut, an analyst at New York-based hedge fund Sanno Point Capital Management. ``There's going to be more risk aversion.''