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 ...
Yep! They will never get their hands on a single cent of mine.
How does one go about doing that? I am interested in finding out.
Ping my 401k.
I’ll go with GM any day!
Yes, all true.
I got into disagreements with some other FR members who thought that MA/NY coming down on the various banks for the ARS scam was “anti-free market” - when my central point was that advertising ARS as “same as cash” was the central point of the fraud. What the market showed us in Sep/Oct of 2008 was this: There is nothing, NOTHING that is “same as cash.” When everyone wants cash “right now!”, there’s nothing like cash, and in fact, when everyone demands cash “right now!”, there’s going to be nowhere near enough cash to convert all these instruments to cash. That’s what happened in 1907, which was what led to the creation of the Fed in the first place, BTW.
If there’s anything I’d try to convince everyone on FR of after 2008’s melt-down, it is this: ANYONE who is telling you that XYZ fund/bond/security/etc is “the same safety/liquidity/whatever as cash” - RUN, do not walk in the other direction. An honest advisor/broker will spell out the liquidity risk in instruments, a dishonest one will use terms like “same as cash.” There’s no shortage of small businesses who lost their business because they could not get at their money to pay their bills because the ARS market just evaporated overnight, and so did the liquidity. Suddenly, instruments that were supposed to be “same as cash” ended up being illiquid for 30 to 90 days. When you’re on a tight budget, as most small businesses are, they simply cannot afford to have their cash inaccessible for that amount of time.
As you point out, Lehman was one of the biggest CP paper peddlers in the world (not just Wall Street). When they went belly-up, suddenly everyone got a hard lesson in what is cash and what isn’t.
Now, what we have is a market with fewer, bigger, even bigger than “too big to fail” outfits in the world, with no cessation of stupid risk-taking, ie, the Lehman-style risk has amplified, not diminished.
I must say, I’ve suspected this was coming. I moved my Dad to an assisted living facility about a year ago....right after my Mom died. He named me as executor of his rather sizeable estate. A very close friend is a financial analyst for Wells Fargo. Under a ‘veil of secrecy’ LOL, he suggested I liquidate all his assests, other than the property owned. For the record, this is not the advice he gave his clients. I am not a client, just a good friend. I took my friend seriously and converted everything to cash, and tangible gold and silver. It is all as safe and secure as I can make it for my Dad. The land, timber and oil and mineral leases in Texas will just be on hold for a while.
On the other hand, my husband and I are still rather heavily invested in mutual funds and some stocks. Mr. RR is handling those, but I’m trying to convince him to liquidate those as well.
Just really don’t know what to do.
I’ve converted all my money market funds to cats!
bttt
Hmm. Does this mean that keeping 1/3 of my savings in CD’s wasn’t a dumb thing to do?
Outrageous! Money market managers should be forced to liquidate immediately! No matter how large the losses! /financial idiocy off.
Make a ta pan, liquidate your accounts, buy land with it,and / or get establish perfectly legal accounts off shore which are not subject to direct US regulation.
You will be very glad you did.If you want details , FRmail me.
Massive deflation is the Fed’s exit strategy.
Cash is king
I’m feeling rather ignorant right now. What is a “ta pan”?
MY BAD ! Typing in a hurry .....Ta pan is : Tax plan.
My apologies for the typo.
What if the "crisis" is hyperinflation - and by the time you can liquidate - you're money's not worth squat?
Are you talking about the 550 billion electronic draw down on banks last year? The one that put Obama firmly in the winners seat? And the one Paulsen went screaming to Bush he needed to plug the hole with a immediate cash infusion? TARP!
Probably not in any classic wage / price spiral. But what is realistic is a government-engineered one-time devaluation. The Fed is not going to shrink their balance sheet back to "normal" ever. So their best option at some point will be to print and send out dollars instead of pushing on the string. The dollars will go to some of the same suspects as the credit so they can be used to eliminate large chunks of private debt.
Then the debt machine will start over again. But in the meantime your dollars have taken a 33% (or some similar) haircut.
Money market mutual funds are pretty much toast right now anyway, the rates are so low they can’t provide a positive return to investors! Many are closed to new investors from what I have been reading.
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