The Sound Of Distant Helicopter Engines

[Jim Nickerson]

Re: The Sound Of Distant Helicopter Engines

Regarding MM accounts:

Every MM account I've had at a brokerage has come with a prospectus and a mutual fund ticker.

Son of a...

I just looked at the Vanguard "stable" fund and a whole crapload of them are backed by MBS.

Probably would not have dug that deep without warning from itulip.

I was going to say many MM accounts work like that, backed by bonds and whatnot. Fortunately I've liquidated any cash in my brokerages, but dammit, now I gotta figure out what to do in my 401k.

How does one "liquidate cash in one's brokerage accounts"? Withdraw it and hold currency under one's mattress?

As I remember some years back one or two MM funds lost value. It has not been a very frequent occurrence. I don't recall what the percentage loss was. It may have been in some Harbor fund, but that is just a wild recollection.

[bill]

Re: The Sound Of Distant Helicopter Engines

Bid the prices of land up, create a problem of credit worthiness with higher rates and inflate other staples ie food/gas and bingo, you've got your problem,

Japanese have been busy doing the same global. As I said in April http://www.itulip.com/forums/showthr...=9703#post9703 now it’s liquidation time.

Will the US Government create another http://www.fdic.gov/bank/analytical/...le1/index.html funded by tax payer’s so the government connected insiders can purchase assets on the cheap?
At least we could do is name the corp., any ideas?

[jacobdcoates]

Re: The Sound Of Distant Helicopter Engines

The little blurb that i posted, was for a large regional bank MM fund that was part of my 401k. Of which, i happen to work for. Unfortunately I can not hold straight cash in my 401k so I shipped it to overseas equities. I figure even if they go down, the tanking of the dollar will mitigate some of the losses(I hope. gulp!!!).

FYI: bank are hiring like mad!!!! for collectors, 45 in the last two weeks where i work.

[Finster]

Re: The Sound Of Distant Helicopter Engines

How does one "liquidate cash in one's brokerage accounts"? Withdraw it and hold currency under one's mattress?

As I remember some years back one or two MM funds lost value. It has not been a very frequent occurrence. I don't recall what the percentage loss was. It may have been in some Harbor fund, but that is just a wild recollection.

Ha! How does one liquidate liquidity? Your question really gets to the crux of risk. There isn't any such thing as risk-free. Even cash under the mattress depreciates most of the time.

Risk can't be eliminated, only mitigated. And to to that you need to diversify among asset classes, because what might pose a risk to one is usually a benefit to another. For example, if stocks crash, bonds may soar. If the bonar crashes your gold will do very well.

Money market funds have to be looked at on a case-by-case basis. If the manager has been reaching for yield, there may be some elevated risk there. If the fund holds only USTBills, it's probably safer than even an FDIC-insured bank account. In the latter, if the bank has problems you will probably still get your money back, but you may have to wait and endure some hassles. Brokerage accounts, by the way, often have SIPC coverage. Possibly the safest interest-bearing cash-equivalent there is is TBills in an account with US Treasury Direct.

I'm not a big fan of money market funds myself, because the principal fluctuation in a short-term-treasury fund is generally small enough anyway to not be a problem. Short term interest rates would really have to spike hard to send them down more a percent or two, and the same kind of event could cause a money market fund to break the buck anyway. And that would be a definite failure to meet objective for the latter, but normal course of business for the former. I'd rather have something fall 2-3% when I'd expect that to happen than have something fall 1% when I was expecting no change at all.

[raja]

Re: The Sound Of Distant Helicopter Engines

Finster pointed out that brokerage houses often have SPIC coverage.
Not knowing exactly what that meant, I did a little research that might be of interest . . . .

From http://www.sipc.org/

SIPC is the first line of defense in the event a brokerage firm fails owing customers cash and securities that are missing from customer accounts. Although not every investor is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back from SIPC. From its creation by Congress in 1970 through December 2006, SIPC advanced $505 million in order to make possible the recovery of $15.7 billion in assets for an estimated 626,000 investors.

When a brokerage is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers’ cash, stock and other securities. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever…or wait for years while their assets are tied up in court. However, because not everyone, and not every loss, is protected by SIPC, you are urged to read this whole brochure carefully to learn about the limits of protection.

SIPC is not the FDIC. The Securities Investor Protection Corporation does not offer to investors the same blanket protection that the Federal Deposit Insurance Corporation provides to bank depositors.

How are SIPC and the FDIC different? When a member bank fails, the FDIC insures all depositors at that institution against loss up to a certain dollar limit. The FDIC’s no-questions-asked approach makes sense because the banking world is “risk averse.” Most savers put their money in FDIC-insured bank accounts because they can’t afford to lose their money.

That is precisely the opposite of how investors behave in the stock market, in which rewards are only possible with risk. Most market losses are a normal part of the ups and downs of the risk-oriented world of investing. That is why SIPC does not bail out investors when the value of their stocks, bonds and other investments falls for any reason. Instead, SIPC replaces missing stocks and other securities where it is possible to do so ... even when the investments have increased in value.

SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.

Investments protected by SIPC. The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

Terms of SIPC help. Customers of a failed brokerage firm get back all securities (such as stocks and bonds) that already are registered in their name or are in the process of being registered. After this first step, the firm’s remaining customer assets are then divided on a pro rata basis with funds shared in proportion to the size of claims. If sufficient funds are not available in the firm’s customer accounts to satisfy claims within these limits, the reserve funds of SIPC are used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $100,000 for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account.

The Securities Investor Protection Corporation was not chartered by Congress to combat fraud.
"Insurance" for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.
With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.

I use Ameritrade, which is covered by SIPC and FINRA.

From http://www.finra.org/

The Financial Industry Regulatory Authority (FINRA), is the largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,100 brokerage firms, about 173,000 branch offices and more than 665,000 registered securities representatives.

Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.

Vigorous, fair and effective enforcement of federal securities laws and regulations is at the very heart of FINRA's mission. Federal law gives FINRA authority to discipline securities firms and individuals in the securities industry who violate its rules, federal securities laws, and rules enacted by the Municipal Securities Rulemaking Board. We can fine, suspend or even expel them from the industry.

By maintaining constant market surveillance - on both a real-time and post-trade basis -- FINRA helps ensure the fair and orderly conduct of securities transactions. FINRA oversees and regulates all trading on NASDAQ, the American Stock Exchange, the International Securities Exchange, the Chicago Climate Exchange and in the OTC markets, as well as trades in New York Stock Exchange- and Amex-listed securities reported to NASDAQ.

FINRA also regulates trading in the corporate bond markets. All corporate bond transactions are reported to FINRA's Trade Reporting and Compliance Engine (TRACE) within 15 minutes of execution and are disseminated immediately to the public. (In addition, private securities transactions executed under Rule 144A of the Securities Act are reported to TRACE for regulatory purposes, but not disseminated.)

At FINRA, we don't simply wait for violations to occur. We are committed to looking ahead, trying to foresee and prevent problems before they can harm investors.

FINRA employs advanced technology to monitor the markets and the activities of regulated firms. FINRA's surveillance systems employ sophisticated analytical engines, data mining and pattern recognition to identify problematic trades, detect insider trading and other illicit activity, and identify brokerage firms that pose the greatest risks to market integrity. In addition, FINRA has developed ADF (for Alternative Display Facility), a system that provides a neutral facility for regulated firms to report quotes and trades, and TRACE, our bond trade reporting system that has brought unprecedented transparency to the growing fixed income market.

[Andreuccio]

Re: The Sound Of Distant Helicopter Engines

EJ - Thanks for all the info. I followed the link at Banking at About.com and then found this page:

http://banking.about.com/od/investments/a/mmavsmmf.htm

which talks about the differrence between MM "Funds" and MM "Accounts". It turns out what I have at Capital One and National City are Accounts, not Funds, and as such are FDIC insured up to $100,000, unlike funds, and are much safer.

Assuming this is correct, maybe you want to include them in your "Great Bank Rate" thread. I get a little over 5% at both of them, National City had a teaser that was 1/4 % over that, and Capital One offers an incentive bonus if you open the account through Costco. It's not the 6%+ some of the CD's offer, but it's open to anyone, not just some limited group, and the money's not locked up like a CD.

[Finster]

Re: The Sound Of Distant Helicopter Engines

EJ - Thanks for all the info. I followed the link at Banking at About.com and then found this page:

http://banking.about.com/od/investments/a/mmavsmmf.htm

which talks about the differrence between MM "Funds" and MM "Accounts". It turns out what I have at Capital One and National City are Accounts, not Funds, and as such are FDIC insured up to $100,000, unlike funds, and are much safer.

Assuming this is correct, maybe you want to include them in your "Great Bank Rate" thread. I get a little over 5% at both of them, National City had a teaser that was 1/4 % over that, and Capital One offers an incentive bonus if you open the account through Costco. It's not the 6%+ some of the CD's offer, but it's open to anyone, not just some limited group, and the money's not locked up like a CD.

Despite the confusing similarity of names, money market accounts and money market funds are like apples and oranges. The former is a type of bank deposit (savings) account. The latter is a type of mutual fund, a pooled investment that is managed with the objective of a constant $1 per share net asset value.

That does NOT mean that the former is automatically safer than the latter. Depending on what's in it and how it's managed, the latter can actually be safer, as discussed in my last post above.

[Andreuccio]

Re: The Sound Of Distant Helicopter Engines

That does NOT mean that the former is automatically safer than the latter. Depending on what's in it and how it's managed, the latter can actually be safer, as discussed in my last post above.

Uh-oh.

Thanks for the reply. I looked through your posts on this thread, but I couldn't figure out which one you were referring to.

[Andreuccio]

Re: The Sound Of Distant Helicopter Engines

Speaking of grenades, today I got a call from a friend I've known about six years at one of the top three investment banks. He asked, “Hey, have you written anything about money market funds for iTulip?”

“No, why?” I ask.

“Because you and your readers might be surprised to know that a lot of MM funds have B2 and worse grade securitized debt based on things like letters of credit backing them. One in Europe is off 20% in one day. I bet most folks in MM funds don’t think $1 in their MM fund one day can turn into 80 cents the next.”

“Good idea.” I said. "We’ll get on it."

And he hung up.

We haven't done much digging yet, but I recommend readers take a look at their money market funds to make sure they are safe. If you have any doubts, you may want to call your brokerage or bank and find out what you MM fund is made out of.

I saw an article this morning with some information regarding this issue:

http://money.cnn.com/2007/10/19/maga...ion=2007101917

A large Bank of America money market fund has over $600 million of exposure to Cheyne Finance, the structured investment vehicle (SIV) that recently defaulted on its obligations.
...
As of Oct. 12, Bank of America's Columbia Cash Reserve fund appeared to hold securities issued by at least five other SIVs, according to a list of holdings published on the fund's website.

[jk]

Re: The Sound Of Distant Helicopter Engines

columbia cash reserves assets from cheyne represent 1.4% of total assets - [just looked up their holdings.] if these holdings go to zero [which they probably won't] it will show up as a dent in the return on the fund, not a capital loss.