Non-FDIC Insured Money Market Funds Now at Risk of Failure
Yahoo Finance
September 18, 2008
From ClusterStock, Sept. 17, 2008:
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The financial meltdown surpassed another dismal milestone today as the bankruptcy of Lehman Brothers forced one of the world’s premiere money market funds to record a loss — the first for such a fund in 14 years.
If you’re scared that you, too, are going to get slammed, put your money in an FDIC-insured savings account and/or invest it in a money-market fund at a major firm that will be publicly humiliated if its funds drop. This is no guarantee, of course (the fund that lost money today is a big one), but it’s better than investing in little money-market funds no one has ever heard of.
WSJ:
In a sign of how the financial crisis is hitting small investors, a huge money-market fund, the Reserve Primary Fund, announced Tuesday that it lost money as its net asset value fell below the hallowed $1-per-share level, the first time one of these conservative funds has had a loss in 14 years.
The culprit was debt securities it holds issued by Lehman Brothers Holdings Inc.
The news raised the prospect more losses might be in store for other money-market funds holding paper from Lehman, which collapsed Monday, and from other problem-ridden firms. As of Friday, the Reserve Fund had assets of around $62 billion, but they have fallen considerably since.
- A d v e r t i s e m e n t
The development "is really, really bad," said Don Phillips, one of the founders of Morningstar Inc. "You talk about Lehman and Merrill having been stellar institutions but breaking the buck is sacred territory."
The Reserve is a New York cash-management firm that prides itself on creating the first money-market fund. It has dubbed itself "the world’s most experienced money fund manager" with $125 billion in assets through June. It didn’t return calls for comment.
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