The media is so enamored with the AIG story tonight, they are glossing over this one (see link), which could be just as big as it relates to the average American and their confidence in the system. AIG to most guys on main street doesn’t mean much.
This breaking NYT story will hit everyone:
http://www.nytimes.com/2008/09/17/business/17fund.html?ref=business
This is a severe hit to the mind of Joe Sixpack. “But banks aren’t supposed to lose money. I mean, not deposits, right???”
When people start to realize they may not get back all of their “100% safe” money out of their money market accounts, this could create a bank panic and a run.
Very scary stuff. It is a small loss. 3% is nothing. But it is the type of loss that causes panic and bank runs. Joe Sixpack is going to need a lot of reprogramming not to pull his money out of the bank and put it home in the mattress.
I agree, this is a very distressing development and I’ve been waiting for a long time for one of the money market funds to fail to return principal. This must be watched closely. If people pull their money out of banks, we collapse. End game. End of story. Good-bye economy. Hello Great Depression II.