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Money market giant freezes redemptions
Moneywatch ^ | Sept. 16, 2008 | Sam Mamudi

Posted on 09/16/2008 5:03:22 PM PDT by ThePythonicCow

NEW YORK (MarketWatch) -- [The Reserve] has put a seven-day freeze on redemptions after the net asset value of [shares of its "Primary Fund"] fell below $1.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy
KEYWORDS: banks; economy; govwatch; housingbubble; investments; market; money
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This is the first instance of a Money Market Fund getting into trouble that I've noticed. They had 3% of their money invested in Lehman, which portion is now valued at zero, resulting in the value of this fund losing 3%.

Redemptions from this Money Market Fund are now being delayed for up to seven calendar days after request.

If you go to the home page of The Reserve, and click on the link "A Statement Regarding The Primary Fund", you will go to the following letter, describing this in more detail:

September 16, 2008

The Board of Trustees of The Reserve Fund, after reviewing the unprecedented market events of the past several days and their impact on The Primary Fund, a series of The Reserve Fund and taking into account recommendations made by Reserve Management Company, Inc., the investment manager of The Primary Fund, approved the following actions with respect to The Primary Fund only:

The value of the debt securities issued by Lehman Brothers Holdings, Inc. (face value $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00PM New York time today. As a result, the NAV of the Primary Fund, effective as of 4:00PM, is $0.97 per share. All redemption requests received prior to 3:00PM today will be redeemed at a net asset value of $1.00 per share.

Effective today and until further notice, the proceeds of redemptions from The Primary Fund will not be transmitted to the redeeming investor for a period of up to seven calendar days after the redemption. The seven-day redemption delay will not apply to debit card transactions, ACH transactions or checks written against the assets of the Primary Fund provided that any such transaction from an investor, individually or in the aggregate, does not exceed $10,000.

The Primary Fund will continue to accept purchase orders. Effective tomorrow, September 17, 2008, the NAV for the

Primary Fund will be calculated once a day at 5:00PM, New York time.

Currently, the safest investments seem to be short term Treasuries.

That will change ... nothing is safe forever. But for now, that's what I'd recommend.

Also I recommend:


1 posted on 09/16/2008 5:03:23 PM PDT by ThePythonicCow
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To: ThePythonicCow

This is bad... The reserve is what td ameritrade uses for cash on hand.


2 posted on 09/16/2008 5:08:20 PM PDT by GreaterSwiss
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To: ThePythonicCow

This is not good. If some of the big boys do this there be a panic.


3 posted on 09/16/2008 5:08:32 PM PDT by Uncle Hal
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To: ThePythonicCow

Some people around here have taken pleasure at seeing the “fat cats” get screwed. I hope they are happy.


4 posted on 09/16/2008 5:11:45 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: ThePythonicCow

Thanks for such rational, calm and collected advice. May keep them Goldnuts in the nuthouse for at least another fortnight! ROTFLMAO!


5 posted on 09/16/2008 5:14:53 PM PDT by nkycincinnatikid
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To: ThePythonicCow

Thing is the BIG $$$ liberals in the MSM and Hollywood have to be getting worried about their $$$-—I wonder if they have enough brains to see who caused this BS and that Obama and the other democrat snake oil merchants in congress will only make it worse


6 posted on 09/16/2008 5:24:30 PM PDT by uncbob
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To: Uncle Hal

Won’t this mean that interest rates will move upwards to attract new investment money?


7 posted on 09/16/2008 5:28:16 PM PDT by padre35 (Sarah Palin is the one we've been waiting for..Rom 10.10..)
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To: ThePythonicCow
This is the first instance of a Money Market Fund getting into trouble that I've noticed.

One other mmf did but the parent company paid the obligations anyway. But an investor can't count on that largess.

8 posted on 09/16/2008 5:31:12 PM PDT by steve86 (Acerbic by nature, not nurture™)
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To: nkycincinnatikid
I earned that calm demeanor the hard way ... I've lost mucho money in gold the last few months ;).

I've been one of those gold nuts.

9 posted on 09/16/2008 5:51:29 PM PDT by ThePythonicCow (By their false faith in Man as God, the left would destroy us. They call this faith change.)
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To: ThePythonicCow
I am a bear sniffer. I put all of me retirement fund into a stable value fund 8 weeks ago.

Now I have to find out when to go bull!

10 posted on 09/16/2008 5:55:32 PM PDT by rocksblues (Hockey Moms are tougher than Soccer Moms)
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To: padre35
Yes, at some point.

Right now, interest rates have gone --both-- ways, some up, some down.

Interest rates on short term Treasuries have gone to some of the lowest rates in years, as everyone buys them (driving down the rate they pay) in a mad rush to safety.

Meanwhile interest rates on anything long term or in the slightest bit risky have gone sky high (well, not yet as high as in the worst of the Carter years, but pretty high, and still climbing.)

I expect that the government will have no choice but to inflate the dollar dramatically at some point, so that they can pay off all the rapidly increasing debt load and unfunded liabilities with cheaper dollars. They just picked up another trillion dollars or so with Fannie and Freddie, and us baby boomers have just started collecting Social Security. Dollar inflation goes hand in hand with higher interest rates, even on the safest short term Treasuries.

11 posted on 09/16/2008 5:59:15 PM PDT by ThePythonicCow (By their false faith in Man as God, the left would destroy us. They call this faith change.)
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To: ThePythonicCow

“It’s not speed but endurance”
Auntie Mame


12 posted on 09/16/2008 6:04:11 PM PDT by nkycincinnatikid
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To: ThePythonicCow

My mattress is completely full. What should I do now? I am thinking of getting a bigger mattress.


13 posted on 09/16/2008 6:10:57 PM PDT by frankjr (Stand up Chuck, let 'em see ya!!! Ohhhhhh.)
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To: frankjr
Donate to FreeRepublic.com!
14 posted on 09/16/2008 6:17:13 PM PDT by ThePythonicCow (By their false faith in Man as God, the left would destroy us. They call this faith change.)
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To: ThePythonicCow

...real estate with greenhouses, energy plants and reinforced sub-surface structures in highly elevated, remote places. ;-)


15 posted on 09/16/2008 6:25:06 PM PDT by familyop (cbt. engr. (cbt), NG, '89-'96, Duncan Hunter or no-vote)
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To: ThePythonicCow

In my opinion a liquid reserves fund (money market fund) that concentrates 3% of it investments in one corporate issuer has committed a fiduciary error and should be investigated for malfeasance of fiduciary duty.


16 posted on 09/16/2008 6:26:32 PM PDT by 1stMarylandRegiment (Conserve Liberty)
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To: ThePythonicCow

When we cleared through Bear Stearns, Reserve was the fund used by default.

If I am reading this correctly, accounts will not be able to redeem for purchases either, meaning accounts with funds with reserve are effectively looked out of any market-purchase activity?


17 posted on 09/16/2008 7:09:14 PM PDT by WoofDog123
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To: 1stMarylandRegiment

I am kind of curious about where/when the LEH debt was purchased by the fund, as a corollary to your point.


18 posted on 09/16/2008 7:11:25 PM PDT by WoofDog123
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To: ThePythonicCow

Time to buy.


19 posted on 09/16/2008 7:19:04 PM PDT by muawiyah
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To: padre35

You are correct. Interest rates on money market funds that are invested in corporate obligations like the Reserve Fund will see their rates dramatically rise to compensate and prevent people from leaving the fund.

Funds that invest solely in government backed securities will see rates fall as people flood those.

The only problem with the whole thing is that corporate American uses those short term money market instruments to borrow from. So we’ve just added a lot more interest expense to the bottom lines of corporate America trying to compete and get strong again.


20 posted on 09/16/2008 8:34:37 PM PDT by SteveAustin
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