Vinny’s Blog

It’s always good to followup on an old situation….just to see if things have changed since then or not. Change meaning changed for good or bad or they may remain as it is….’static’ with no change.

Back in 2008, in the month of September I made 2 posts about Money Market Funds. Most people in US have and operate Money Market Accounts. These accounts are referred with variety of names such as Money Fund, Money Market Funds, Money Market Accounts there may be a few other names that I am not aware of.

Anyway, In those previous 2 posts few things emerged.

a) Until September of 2008 these accounts were not insured by FDIC.

b) Money Market Funds had never lost money either. If history is of any significance and is reliable. Then (…mostly..) history has been that till 2008 money market funds never lost money. Only in 2008 so happened that money market funds lost money (who didn’t and which sector didn’t except gold ?……)

If you did not read previous two posts about money market accounts or if you do not recall them, I would suggest you read them first. Here are links for previous two posts. They might help you in, understanding this post ( gravity of it ) better.

1st Post

2nd Post

Back then in 2008 when I made those post it was my own analysis. I gathered news from different news papers, media sites and started to look at it. I amazed myself when I finished painting the full picture. I my self had difficulty believing what I wrote and the conclusion that I was coming to.

Anyway that was me. Who cares what I have to say….and so it’s important you listen to this congressman now. Please play the video below…

I assume,  you did listen to the congress man….( Was I too off in my analysis back then in 2008 ? )

Again assuming that,  now your ears, eyes,  (who knows may be your brain…too) are opened up about the power of money market accounts……….. Did you realize that we were 24 hours away from complete collapse of world economy. Did you know that we were just 500 trades away from a complete market meltdown ? That article is still online in case you want to read it…

ALMOST ARMAGEDDON
MARKETS WERE 500 TRADES FROM A MELTDOWN

One other thing that emerges from this video interview is that Government did not (…back then..) and I assume even today it does not have enough money to buy all the toxic assets from banks. That is why treasury is trying to print…$h!^…load of money now. It is also the reason why Federal Reserve is pumping so much money in the stocks of these large banks and insurance companies like Citi, Bank of America and AIG…and others…… I don’t think fundamentals have changed for these large companies since then.

What was toxic back in 2008 is still toxic today. Unless you believe that poison can be turned into life saving nectar….I have no reason to believe in it.

Actually, my guess is that these toxic asset are going to grow even more in size this year in 2009. Because United States has had record number of layoffs since Nov/Dec of 2008, which still continue. Un-employment is now multiyear high. Chances are,  that more and more people will stop making their mortgage payments sooner or later and that will only increase quantity and toxic level in the basket of toxic assets that these banks hold.

Jobless Claims Hit 26-Year High

Anyway, this post is about money market account (…follow up…) so let us not loose focus..here…bank and their problems we will discuss some other day.

So, where are we with Money Market Funds now……..

JPMorgan’s Staley Calls Money Funds ‘Systemic Risk’ (Update3)
By Christine Harper and Christopher Condon

Jan. 30 (Bloomberg) — James “Jes” Staley, head of JPMorgan Chase & Co.’s investment unit, said the $4 trillion money-market fund industry is the “greatest systemic risk” to the financial system that hasn’t been adequately addressed.

“What keeps me up at night most of anything we do at JPMorgan Asset Management is the money-market fund space,” Staley said at a discussion hosted today by Credit Suisse Group AG in Davos, Switzerland. “One of the things that has to come out and get a lot more attention and discussion is how do we take the systemic risk posed by money funds out of the system?”

JPMorgan Asset Management oversees about $500 billion of money-market funds, Staley said. The funds aren’t allowed to set aside capital to absorb investment losses, leaving no “margin of error” against a potential collapse, he said.

The recommendations, if adopted by regulators, would force money funds to choose between accepting banking-industry controls or giving up accounting rules that help them maintain a stable $1-a-share net asset value, or NAV, which make them the safest investment after bank accounts and Treasury bonds.

“The widespread run on money-market mutual funds has underscored the dangers of institutions with no capital, no supervision and no safety net operating as large pools of maturity transformation and liquidity risk,” the report said.

“We believe the money-market business, which is essentially a shadow banking business, should be treated like a banking business with capital charges associated with it, or reserves associated with it,” Fink said in a conference call with analysts Jan. 21

Here is link to full article click here to read it

…….And then the question is how safe do you think your Money Market Account is ? do you think FDIC has enough money to backup your money market account now ?

This article refers ^1 2

1. Previous Posts on Money Market ! [↩]
2. Another Posts on Money Market ! [↩]