Today’s WSJ writes “‘Breaking the Buck’ Was Close for Many Money Funds”. It says, “At least 36 of the 100-largest U.S. prime money-market funds had to be propped up in order to survive the financial crisis, according to a report from Moody’s Investors Service….
You can see more on the Moody’s report from the Journal article, at http://www.moodys.com, or on my site (http://www.cranedata.com), but I wanted to add my comments from the WSJ website. I wrote:
Shilling and the Journal are incorrect in saying these 36 funds would have “broken the buck” without support from their advisors or distributors. In almost all cases of parental support, managers of money market funds take action to remove or protect a troubled security long before the $1.00 a share level is in serious danger. (Fund would act when the “shadow” price underneath was, say, $0.9975, half-way towards “breaking the buck.”) Of course, had the parent not removed a “Lehman Brothers” or a troubled SIV (structured investment vehicle), a series of events likely would have ensued leading to a “breaking of the buck.” But it’s pure speculation to say this would have occurred…. Note that even in the case of Reserve Primary Fund, the only major money fund to ever “break the buck,” the losses have amounted to less than a penny a share. Investors in this fund, the worst disaster in the history of the money fund business, still made more money than they would have in a bank checking account, after interest is taken into account. (They got back $0.99 and made 3-4% in interest in the 9 months leading up to Sept. ’08, so the returns for this fund were positive in 2008.) Finally, to respond to two comments above: No, Vanguard Prime was not one of the funds requiring support, and, GE did not have a money fund requiring support — they did have an “enhanced cash” fund that fell below $1.00, but these are not the same thing as a “money market fund”.
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