Definite plus for the dems and key to "zero's" election.
I'm not that literate in high level, economics but it wouldn't surprise me to see Soros', Saudi and possibly Chinese fingerprints all over it.
The run on money market funds occurred due to the failure of Lehman Bros on September 15th. The Reserve Fund, the original money market fund, was heavily invested in Lehman Bros paper and it “broke the buck” meaning its shares fell below a dollar. This was just more fallout from the collapse of the mortgage bubble. No conspiracy needed.
pretty sure it was related to reserve fund’s problems after lehman went under. At that point, it made perfect sense to pull your funds out of US Money Markets if you had another country to put them in.
No, it wasn’t “engineered” or set up. The explanation for the collapse of the Reserve Primary Fund was rather simple. Here’s the executive summary:
The Reserve Primary Fund was a money market fund that was used by broker/dealers/hedge funds as a money market fund. They owned paper from a large number of banks and financial institutions as the basis of the Primary Fund. When Lehman tipped over, they declared the $785 million in Lehman paper to be “worthless,” which causes the NAV of the Reserve Fund to fall below $1.00/share, or in street lingo “break the buck.”
Suddenly, people realized that after 40 years or so of growing to think of money market funds as being “safe as cash,” they were not, and that the widening gyre on Wall Street was breaking a LOT of assumptions about how the debt markets worked. If money market funds were no longer free of exposure to liquidity risk, then nothing was. A stampede ensued to start pulling money out of money market funds.
Now, the way these fund work is that they have a nice cushion of cash, but that they maintain a regularly rolling ladder of short-term debt paper.
Have a look at the portfolio of the Reserve Primary Fund in the report below and you’ll see what I mean. See how short-dated those bonds are? They’re rolling 10’s to 100’s of millions of any particular type of paper in a month.
http://www.reservefunds.com/pdfs/pgtannual.pdf
Ah, but if suddenly everyone wants to cash out at once... well then, the fund is sunk. They would have to sell into a crashing market, with low return of capital because no one wants the stuff. The investors would be taking some serious losses. And that would hold true for most all money market funds, not just Reserve’s.
On that week in September, we came within a few hours of complete melt-down of the markets in the US. There was no enough cash or “slack” in the system to allow the redemption of that much money in so short a time. As the demand for cash-outs would have increased, the liquidity risk would have multiplied in most all instruments, which would have spread the failure out beyond just the debt markets to all other markets - in effect, re-creating the crash of 1907 in some aspects.