Money Market Funds

NEW -> Contingent Buyer Assistance Program

profette_IHB

New member
<span style="color: red;">My goodness, the government is busy these days. It's a good thing they can print money, 'cause they're gonna need a lot of it...</span>



<strong>Treasury to Guarantee Money Market Funds </strong>



The federal government took two dramatic steps on Friday to in a bid to restore confidence in money market funds, which consumers have long been considered to be as safe as bank savings accounts, but which have come under increasing stress in the current market turmoil.



The Treasury Department announced that, at least temporarily, it would guarantee money market funds against losses up to $50 billion.



<a href="http://www.nytimes.com/2008/09/20/business/20moneys.html?_r=1&hp&oref;=slogin">linky</a>
 
If they didn't....companies that need access to the commercial market for their daily business activities would be kaput and in result...people would be unemployed etc.



Read this and understand the ramifications...



http://online.wsj.com/article/SB122178512930354917.html?mod=rss_markets_main



Investors Flee Money Funds, Moving Cash to Safer Spots

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Investors pulled more cash out of money-market funds, prompting a second large fund to close to investors, amid concern that these onetime safe harbors are now too risky.

In an effort to stem such withdrawals, the U.S. government Thursday night was working toward taking the unprecedented step of covering money-market funds with a variation of the federal deposit insurance provided to banks.

Until now, the $3.4 trillion money-market-fund industry largely hasn't offered the same type of insurance provided for bank deposits. The plan being discussed likely would cap the amount insured, just as bank accounts are insured up to a certain sum, usually $100,000.

The moves highlight how concerned regulators have become about the rapid outflows from money funds in recent days. Money funds serve as buyers for so-called commercial paper, which companies use to help finance daily operations.

As credit markets locked up world-wide, investors have started moving their cash from money funds to safer locales, such as U.S. Treasurys and bank certificates of deposit. A run on money funds would have implications for corporations that depend on short-term funding such as commercial paper. If the funds don't buy this paper, it could cause a cash crunch, rippling through the wider economy.

Some $78.7 billion was withdrawn from large money funds Wednesday, following a $13 billion outflow Monday and $33.7 billion Tuesday, according to Crane Data LLC. Investors continued to pull money out of some funds Thursday.

Putnam Prime Money Market Fund (Institutional) announced it had closed Wednesday and would distribute assets to customers because of "market-wide liquidity issues." That apparently meant it was having trouble trading the short-term debt instruments in its portfolio due to the credit crunch. The $12.3 billion fund, available only to clients with a $10 million minimum investment, said it held no paper from such problem issuers as Lehman Brothers Holdings Inc., Washington Mutual Inc. or American International Group Inc.
 
It's pretty simple. What we have here, is literally, a modern run on the bank. The run is just on the new products that didn't exist before because people suddenly realized they aren't safe and the people entrusted with it, aren't trustworthy.
 
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