Posted on 01/03/2010 11:29:24 AM PST by blackminorca
Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal."
(Excerpt) Read more at zerohedge.com ...
“BREAKDOWN Rahm is an expert in Wall Street thievery. Obama knows zilch but he’s keen on grabbing the wealth of hard-working Americans and giving it to neer-do-wells who will be instructed to use the money for vote fraud in 2010-12.”
LISTEN UP FREEPERS! THIS IS WHAT WE ARE UP AGAINST THIS YEAR. VOTER FRAUD PAID FOR WITH OUR TAX DOLLARS.
LOL! This is funny.
Everson explained that the deteriorating economy combined with Federal Reserve theft of trillions unaccounted for
Yeah, a lot of stupid people believe a lot of stupid things.
One of Everson’s’ sources was quoted as having said “We have plans that if it gets bad enough we will simply commence yard farming,” (a military reference for targeted air strikes) on neighborhoods and communities in cities and states where heavy resistance is expected. A tactic designed to destroy both the enemy and the area(s) under and around the enemy. Everson suggests such horrifying events could possibly coincide with an invasion by the Chinese from the west and Mexico from the south. In any case, military, law enforcement and civilian casualties could be enormous.
Will they us the NAFTA super highway for the invasion?
Don’t worry there are plenty of Bagdhad Bobs left to sooth us sheep as we are led to inevitable slaughter.
Well, no.
Just realize that money market funds are NOT CASH. This goes back to what I was saying up above - too many debt-market “products” have been sold as “same as cash,” or “safe as cash” and so on. ALL claims that something is “safe as cash” are false for some set of market conditions.
Money market funds were “as safe as cash” for 40 years - until one day, the biggest commercial paper house on Wall Street (and one of the biggest in the entire world) - Lehman - went belly up. Suddenly, all assumptions about what was safe and what wasn’t changed. Two generations of “financial professionals” suddenly got their heads out of their asses and said “Oh... never saw that happen before...” and had to come up with a response.
This business of not being able to withdraw your money from a MMF is one of their responses - it is a stupid response IMO, but it is one of the available sets of options. A better option is to tell people what I’m telling you: A MMF is NOT CASH. “Financial professionals” won’t tell you this, because their job is to sell you their products - and cash isn’t one of their products. They make no money, no fees, no grift - off cash. Never, ever forget this one truth about Wall Street: They HATE simple solutions. Their job is to convince you that you a) have a problem (ie, cash pays no interest) and b) sell you a “solution” to that “problem” (the money market fund).
Remember the old saying among “financial professionals:” “Copper your customers and grow rich.” Meaning that they’re looking to shave a penny here, a penny there off of you. Same deal with MMF’s.
Money market funds shouldn’t be where you put your “money I need RIGHT NOW” - that should be in cash. Put money that you can stand waiting a week to two weeks for into a MMF.
Simple: When someone tries to withdraw their money during a panic, tell them “no, you can’t have your money.”
You're right on this, Dave - it's the fastest way to panic people. That said, does this apply to stock Mutual Funds ? Can a hold be put on all redemptions? My Vanguard's Prime Money Market Fund would have a "hold" but not my "gold and precious metals" fund? Is that it? Or does this apply to all "funds"?
The feds must know what you know - the FDIC was set up to assure people their money was safe - to stop bank runs - this regulation does the opposite. It creates fear. They must understand human nature - right?
“Just realize that money market funds are NOT CASH”
I think the difference here is that we have a change to how money market ACCOUNTS in commericial banks,S&L’s are going to be restricted.
This is not the same as a fund handled by your broker.
Sure - they could put a hold on entire markets. Remember that Woodrow Wilson closed the whole stock market for months - July 31st to November 27th, 1914. Truly normal operations on the NYSE didn’t resume until April 15th of the following year. Wilson, was of course, another Ivy League academic, just like our current occupant of 1600 Penny Ave.
The market was closed for days following 9/11. If a market disruption happens again (and they will - we just don’t know when, how bad and for how long, but a big terrorist attack or a huge panic in the markets might bring about an emergency closing), there will be times you cannot sell commodities, stocks, bonds, options, etc unless you’re doing it “on the curb” — ie, between individuals, outside of the markets. That works if you actually have stock or bond certificates, or physical commodities in your possession, but if your assets are held in a brokerage account, especially if they’re “held in street name,” you’re not going to be able to do anything with them until the markets re-open.
If a redemption hold is placed on MMF’s, market closures (and possibly bank holidays) are not far behind.
To deal with this, you should have cash in hand or in a bank in cash. Not in MMF’s. I’m not saying to put all your cash under the mattress and sleep on it, I’m just saying that it should be part of people’s contingency planning - like keeping some water in the basement, some beans and rice, some spare ammo, etc. Keep some money in your portfolio in real cash, out of MMF’s or other short-term bond funds, that you can get to without needing the markets to operate.
This regulation is just another part of Wall Street’s agenda of undoing Glass-Steagall. They want to be able to run riot with all money that they have control over, no matter how stupid the idea. This is yet another part of the reason why I think conservatives are taking a very, very untenable position by arguing for “deregulation” of the financial industry. We shouldn’t be allowing the Democrats to get away with what they’re doing right now, which is making regulations that are favorable to the big fraudster banks - eg, Barney’s gift to the i-banks in the most recent legislation - but Republicans and conservatives have this ideological blind spot about this stuff. They think that all regulations are bad. Not so, especially in the financial industry.
As recent events have proven, the “financial professionals” cannot be trusted - not even with the preservation of their own jobs and companies. These people in finance today are so short-sighted that they’re willing to burn down their entire neighborhood just to prove that they know how to light a bar-b-que with gasoline so they can finish grilling their steaks faster than their next door neighbors.
Too many conservatives are ready to spout such bromides as “deregulation” when that’s exactly what the banks want to hear now. They’ve proven that they can’t be trusted to regulate themselves.
Since we have no leadership in DC on the issue, it is up to everyone to know that your banker/broker is not your friend and deal with him accordingly - as tho you were playing poker with him, he’s known for being a card sharp (and sometimes an outright cheat), and he thinks you’re the easy mark at the table.
Don’t be the easy mark. That’s all.
Since the repeal of Glass-Steagall, the line between bank and broker has become rather blurred. Plenty of people now bank (or have checking accounts) with their brokers, and commercial banks play broker here and there, especially for retirement accounts.
A run on the electronic MM funds is supposedly what started this whole mess way back when or at least was a big part of it.
Kitty Ping.
#55
Cute ping! Wonder what you’d get for silver? Maybe fish??
I’ve seen worse deals. Right now, though, I have more cats than gold.
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Yeah, but I'm a landlord with multiple properties and I run a business from home....I am deduction-rich.
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Yeah, but I'm a landlord with multiple properties and I run a business from home....I am deduction-rich.
You’ve got it under control! Enjoy.
That's my plan. Come confiscate my rusted out truck.
You can pay the towing fees, Uncle 0-Sam-A. ;^)
From the story
A little more on money markets:
Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds, in the United States, are regulated by the Securities and Exchange Commission’s (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.
Ironically, the proposed change to Rule 2a-7 seeks to make dramatic changes to the composition of MMs: from 90 days, the WAM would get shortened to 60 days. And this is occurring at a time when the government is desperately seeking to find ways of extending maturities and durations of short-term debt instruments: by reverse rolling the $3.2 trillion industry, the impetus will be precisely the reverse of what should be happening, as more ultra-short maturity instruments are horded up, leaving a dead zone in the 60-90 day maturity window. Some other proposed changes to 2a-7 include “prohibiting the funds from investing in Second Tier securities, as defined in Rule 2a-7. Eligible securities would be redefined as securities receiving only the highest, rather than the highest two, short-term debt ratings from a requisite nationally recognized securities rating organization. Further, money market funds would be permitted to acquire long-term unrated securities only if they have received long-term ratings in the highest two, rather than the highest three, ratings categories.” In other words, let’s make them so safe, that when the time comes, nobody will have access to them. Brilliant.
Also,
Money Market Mutual Funds and Supervision
Recommendation 3:
a. Money market mutual funds wishing to continue to offer bank-like services, such as transaction account services, withdrawals on demand at par, and assurances of maintaining a stable net asset value (NAV) at par should be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities.
b. Those institutions remaining as money market mutual funds should only offer a conservative investment option with modest upside potential at relatively low risk. The vehicles should be clearly differentiated from federally insured instruments offered by banks, such as money market deposit funds, with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV. Money market mutual funds should not be permitted to use amortized cost pricing, with the implication that they carry a fluctuating NAV rather than one that is pegged at US$1.00 per share
If these new rules go into effect it will almost force these MM funds to reorganize in order to provide thier investors the liquidity and quality they demand.
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