Posted on 09/21/2008 8:37:55 AM PDT by Kozman
With news last week Tuesday that Primary Reserve Fund had "broken the buck", rumors started to fly in a very nervous market, and by Thursday morning of last week, financial institutions began to put in redemption requests by the hundreds of millions for their funds at money market mutual funds. In total...$500 billion in redemption orders were sitting on the desks at money market fund officies, Thursday morning.
Only a quick injection into the system of $105 billion by the Fed prevented the redemptions from being exercised.
The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players...
(Excerpt) Read more at economicpolicyjournal.com ...
Is there a set of trades/short sells that began this set of events?
Who stands to gain from what has occurred?
I think we should keep panicing people so the entire world should fail.
The propaganda engine behind the government takeover of the banking system continues.
It will be the vehicle of socialist wealth transfer for the Obama administration.
Yes. When Lehman went to bankruptcy, a money market fund (specifically, the very first money market fund) “broke the buck.”
ie, the NAV (net asset value) of their money market fund went from 1.00 to $0.97 as a result of about $700 million in Lehman paper that was now inaccessible.
Two more money market funds also broke a buck in NAV.
Money market funds have been marketed as a “cash alternative” for decades. Decades. And when they suffer principle loss, people get a real hard lesson, real fast, that only cash is a ‘cash equivalent.’ There are no substitutes for cash - real cash - in a market crisis like this.
No one stands to gain from the stamped in/out of money market funds. Not the investor, not the money market fund, not the issuer of the bonds in the money market fund, not even the IRS. It is nothing but sheer panic at the short term end of the yield curve.
At one point this week, 3-month T-bills had a negative yield — ie, people wanted to be out of everything else and into some instrument that was a) highly liquid and b) had the full faith and credit of the US government behind it. That’s 3-month T-bills. People were paying so much for these that for a brief moment, they were paying the interest, Uncle Sammy was getting money for free. That day, the 3-month T-Bill closed paying 0.04% interest.
As I keep telling people here on FR (and it just doesn’t ever seem to sink in) the place to be paying attention throughout this entire sub-prime and housing melt down is the bond market. The stock market is a side-show. The real action is in the bond markets around the world.
And on Wednesday and Thursday, the people in the bond markets were just short of jumping out of unopened windows.
OK, fine, if I promise to pay attention to the bond market will you tell me where to put my money?
Figure 90% of it is socked away for long term, the rest won't be needed for at least two years.
I don’t tell people where to put money. I never make recommendations on investments.
I do tell people what is going on and where to look for signs of trouble, and for the last year, THE place to look has been in the bond market. You could see the crap hitting the fan over the last year by looking at only the bond market.
The stock market has been interesting only insofar as watching the value of the common stock of many banks go down and in some cases go to single-digit-midgets.
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