since 2008 U.S. money funds were allowed to pile into Euro bank debt., yes, again....

Discussion in 'Economy' started by Trajan, Jun 27, 2011.

  1. Trajan

    Trajan conscientia mille testes

    Jun 17, 2010
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    The Bay Area Soviet
    and, here we go all of the regs, what 4000 of them(?), bills, stomping, screaming and finger pointing, hashing-rehashing, spluttering Barney slobber, Dodds doddering, SEC back stop re-org's, risk management seminars for the new age, time for another visit to the Money Market submarine ride.....

    none, and I mean not a one of these entities, if the worse were to occur none of them should be bailed out, let them fail and fall, to big to fail my a$$, let the Fit hit the Shan to the fullest, or it will just never end, they will rope a dope and slow roll us till they all have covered their asses and that could take decades if they even can maintain the facade of normalcy....we are back to 1932.

    And IF we are heading there, lets get there and get going already, this death of a thousand cuts is bullshit.

    Oh, and the Euro can blow it our its barracks bag, not a dime via the slight of hand the Fed. maneuvered TARP money, that found its way into EU bank coffers either....its over, their own private investors don't want to be part of propping up Grecian debt. hence the life of the Euro in the long run, so why the hell should we?

    Money-Market Mayhem
    Once again, regulators miss the systemic risk right in front of them.


    That's right, nearly three years after the panic of 2008, our all-seeing regulators have somehow not fixed what was arguably the single biggest justification for government intervention at the time. In 2008, the feds felt obliged to guarantee all money-fund assets after they let the Reserve Primary fund pile into bad Lehman Brothers paper, Reserve broke the $1 net-asset value, and in the following days some $400 billion fled prime money funds. We'd have thought our regulatory wise men would have fixed this systemic risk before all others.

    Yet now we learn that since 2008 U.S. money funds have been allowed to pile into European bank debt even as everyone knew those banks had stocked up on bad European sovereign paper. The Treasury is even saying privately that the U.S. needs to support the European bailout of Greece lest European banks fail, U.S. funds take big losses, and we get another flight from money funds.

    Can this possibly be happening?

    Yes, and this time it's an entire industry as opposed to a particular fund. Half the assets in U.S. prime money market funds were invested in European banks as of the end of May, according to Fitch Ratings. Apparently, our regulators were too busy writing 2,300 pages of Dodd-Frank law and thousands of new rules to notice the systemic risk that is right before their eyes.

    The flight from money funds in 2008, and potentially now, highlights a key vulnerability of the financial system: Money funds are perceived as akin to bank savings accounts because they seem to be all but guaranteed against loss, even though they aren't. Even worse, they employ a creative accounting technique that rewards the first customers to head for the exits.

    This investor conditioning is courtesy of a 1983 Securities and Exchange Commission rule that allows money funds to report a stable net-asset value of $1 per share, even if that's not precisely true based on changes in the fund's underlying assets. The result is that investors have come to expect that money funds never "break the buck," never decline in value. It also means that if big institutions notice that a fund's underlying assets start to decline, they have a strong incentive to get out quickly while their 99-cent investment is still officially valued at $1.

    When the Reserve fund barely broke the buck in September 2008, that was enough for Washington regulators to slap a guarantee against losses on the whole industry, though money funds had never paid for deposit insurance the way that banks do. Treasury did collect more than $1 billion in premium payments from funds before letting the program expire in the fall of 2009, but being able to buy flood insurance while the waters are cresting is not an option for most industries, or most Americans.

    moire at-

    Review & Outlook: Money-Market Mayhem -
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    Last edited: Jun 27, 2011
  2. iamwhatiseem

    iamwhatiseem Gold Member

    Aug 19, 2010
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    Not There
    Yep...and we will do it again to bail out European banks who irresponsibly loaned money to Greece.
    We are systematically being robbed by our elected officials...and meanwhile all we can seem to do is point fingers at each other and throw rocks at the other side.

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