unprecedented run on money market funds

[grapejelly]

http://biz.yahoo.com/ap/080918/putna...ates.html?.v=1

Putnam closed down its MM fund today. 5% redemptions in ALL money market funds over the last days, unprecedented since MM funds started in 1975. Incredible.

On Wednesday alone, investors pulled more than $89 billion from money-market mutual funds, according to data from iMoneyNet, publisher of the newsletter Money Fund Report. Combined with an additional $80 billion removed in the five preceding business days, total fund assets shrank nearly 5 percent from Sept. 10 to Wednesday, when the total stood at $3.35 trillion -- the biggest weekly drop since iMoneyNet began tracking such data in 1975.


In explaining its decision to close Prime Money Market Fund, Putnam said, "Serious constraints on liquidity in money market instruments created the risk that in order to process redemptions, the fund would realize losses in selling its portfolio securities. In the face of these challenges, the trustees determined to close the fund to ensure equitable treatment of all fund shareholders."

[D-Mack]

Re: unprecedented run on money market funds

From the WAPO

...
Also last night, the Fed was considering offering backing for money-market mutual funds, which have had massive withdrawals in recent days, said a source familiar with the discussions.

...

Regulators and the banking industry are increasingly concerned about customer withdrawals from money-market funds. Crane Data, which tracks the industry, said total deposits in money-market funds fell Wednesday by at least $79 billion, or about 2.6 percent. Financial executives have told government officials in recent conversations that the rising pace of withdrawals is the equivalent of a bank run and that if it continues, it will drain a massive and critical source of funding.

Money-market funds are particularly important because they buy short-term debt, which is used by financial companies and other corporations to finance day-to-day activities.

.....

http://www.washingtonpost.com/wp-dyn...091804200.html

edit:I missed this one

U.S. to Protect Money-Market Funds Against Losses (Update2)

By Christopher Condon

Sept. 19 (Bloomberg) -- The U.S. government will set aside as much as $50 billion to temporarily protect investors from losses in money-market mutual funds caused by the meltdown of financial markets.

The Treasury will insure for a year holdings of publicly offered money-market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement.

Money-market funds are considered the safest investments after U.S. Treasury debt and bank deposits because they strive to guarantee that shareholders can always get all their cash back. Confidence in the $3.35 trillion industry was shaken this week when Reserve Primary Fund became the first in 14 years to break the buck, or drop below $1 a share, exposing investors to losses on debt issued by Lehman Brothers Holdings Inc.

...

http://www.bloomberg.com/apps/news?p...d=aPBC5_rPDyQ4

http://www.federalreserve.gov/newsev.../20080919a.htm

[zoog]

Re: unprecedented run on money market funds

...Sept. 19 (Bloomberg) -- The U.S. government will set aside as much as $50 billion to temporarily protect investors from losses in money-market mutual funds caused by the meltdown of financial markets...

I remember back around the time EJ was announcing "time to short the market" and I was wondering what I should do with my 401k, since the options are quite limited. My first impulse was to get out of the various mutual funds and dump it all in the money market fund. But there were discussions here and elsewhere about how money market funds weren't really so safe and secure after all. That worried me, so I only moved about a quarter into the money market fund.

In retrospect I wish that I had just put everything in there and waited a few years (?) before buying back into S&P 500 fund.

But who knows, maybe next week they'll announce that the treasury is going to backstop every stock and mutual fund in the US so nobody loses any more money.:rolleyes: