Thursday, September 18, 2008

The Run from Wall Street

Boy, the scare talk is cascading. They’re saying that Congress might have to feed more money to the FDIC for bank failures. And some money market funds, supposedly thought of as “safe” and practically like savings accounts with larger returns, may have their principal at risk. The fear (at least according to CNBC) is that we could be at the “cusp” of a run on these funds, which are technically uninsured.

Most fund companies are playing “online reputation management” and saying they will make up losses. Wachovia recently covered losses in its Evergreen fund, and Fidelity issued a statement reassuring the safety of principal for investors. The fund that got into trouble is apparently Reserve Primary Fund, which may have been risky even among funds of this type because of unusually high yield.

The government considers the positions of money market funds in deciding what companies to prop up. Apparently, funds had a lot more money in AIG, since it is an “insurance company” than in an investment bank like Lehman Brothers. Nevertheless, both companies had thrown money after unsound mortgages, in what has turned out to become another Ponzi scheme.

The major story in the Business Section, p D1, of The Washington Post is “Beyond Wall St., Losses Spill Over; Long regarded as safe, money market funds are pulled into peril,” by Binyamin Appelbaum, link here.

Steven Levingston has a related gray column on p D4 “How Safe Is Your Money Fund?” He says Vanguard, BlackRock (popular at Merrill Lynch with smaller investors and retirees), Oppenheimer Funds, T. Rowe Price, Franklin Templeton, J.P. Morgan Chase, Legg Mason, and Schwab as having issued public statements about the safety of their funds. I could not fund BlackRock’s statement, at least on their website.

I also quip at statements I read a couple months ago about personal online reputation defense and working in the securities industry. That makes sense, but it seems that a good part of Wall Street has not behaved as if it really cared about reputation recently. You don’t set up Ponzi schemes in real estate set up as “five year plans” and then spread the idea to other businesses.

There are widespread reports this morning that the Federal Reserve has thrown a lot more "Weimar" printed money and liquidity into the system.

Later today:

I just wanted to pass along a reference to an article on Yahoo! by Laura Reilly, “Money & Happiness: The Financial Crisis: Getting to the Roots”, here. She talks about the danger that herself and people with little debt are put in by the recklessness of others. She also talks about how Thomas Jefferson was almost ruined by debt and almost lost Monticello in Charlottesville VA.

Also, Jim Cramer writes on "TheStreet" "What this Government Must Do". To wit, he wants a Resolution Trust, and a $300 billion treasury fund to redeem bad mortgages 30 cents on the dollar, because we have no idea what they are worth. Link.

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