Posted on 09/18/2009 10:16:30 AM PDT by h20skier66
Tim Geithner, the Goldman Sachs Secretary of the Treasury, has gone on record as saying that the government will withdraw its $3 trillion backstop guarantee from the money market fund industry, on schedule, today, September 18th.
While I am for any reduction in the government's role in the economy, this decision is pretty interesting. Why would they do it now, when even a cursory examination of the real economy shows that things are shaky and rocking the boat on investor confidence seems a bit of a gamble?
I will try to answer that question, but only after stepping back to 2008 when I was told by a friend of mine in the most rarified air of high finance that he and all his peers had pulled all their cash out of money market mutual funds in March of 2008. They had done so because of the large quantities of suspect paper littering the portfolios of the funds, much of it anchored to commercial real estate and syndicated portfolios of consumer loans.
As of mid-year 2008, 40% of outstanding corporate paper was held by money market mutual funds. The funds had taken on this paper as a way of trying to boost their yields and therefore gain a competitive advantage.
Another friend, an executive of a very large mutual fund company, confirmed that what lurked under the hood was ugly indeed.
(Excerpt) Read more at commoditynewscenter.com ...
ya destroy and conquer
wow. If they destroy it they can take it over.
A new “black friday” being created? Chaos is the favorite tool of Odumbo.
If they want to improve the business climate they can leave it alone. Just leave everything alone. Just knowing that the rules won’t be changed at a whim will help the economy.
but nnnooooooooo... leftists can’t do that
Now, that Gov’t will get out of the market, risk will come back. Everyone is enjoying the latest rally, but it has been at the hand of Gov’t intervention.
Enough with putting our[my]money at risk for the sake of investment.
wasn’t it one year ago today that our country was atacked via financial manipulation,, and no one knows or cares
And it encourages more risktaking as well, as we can see from this article.
When the government withdraws their temporary guarantee for money market funds the immediate and near term consequences will be to lower the trust people have in such funds and move some of the money in those funds to what they believe to be a safer haven.
NOW WHAT IS THE OBVIOUS SAFE HAVEN?
The answer is of course U.S. Treasuries. The Geithner move will improve the marketability of U.S. government debt at interest rates that are acceptable to the Treasury.
It really isn't any more complicated than that.
And then destroy it even better.....
Yea, glass-steagle was SOOOOOOO outdated anyway...
/wrist
I remember when Money markets were created. Back in the ‘70s (I think), the govt was selling Treasuries in $1,000 amounts to the public. The banks were losing depositors, so they pressed the politicians to hike the minimum price to $10,000.
In typical American fashion, the funds started up Money Markets so the citizen could still get a break.
The results of this move will be interesting.
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