MONEY MARKET FUNDS NO LONGER GUARANTEED - SEPTEMBER 18

Below is David Galland's take on the fact that as of this Friday the US Government will no longer guarantee Money Market Funds. The key points are that the smart money is getting out of MM funds. Assets in these funds have declined by 15% in the last month. There is still $2 trillion in non-Treasury MM funds. Are you sure your MM fund is safe?

The 2nd more important point is that the Treasury is trying to force this money into the Big Banks. DO NOT LET IT HAPPEN. If you withdraw your money, put it in a local credit union or small bank in your community. DO NOT REWARD THE WHORING TARP BANKS. We need to make them fail for the good of the country.

What’s in YOUR Money Market Fund?
I noted with interest that Tim Geithner, the Goldman Sachs Secretary of the Treasury, has gone on record as saying that the government will withdraw its $3 trillion backstop guarantee from the money market fund industry, on schedule, this September 18.

While I am for any reduction in the government’s role in the economy, this decision is pretty interesting. Why would they do it now, when even a cursory examination of the real economy shows that things are shaky and rocking the boat on investor confidence seems a bit of a gamble?

In my usual, convoluted manner, I will try to answer that question, but only after stepping back to 2008 when I was told by a friend of mine in the most rarified air of high finance that he and all his peers had pulled all their cash out of money market mutual funds in March of 2008. They had done so because of the large quantities of suspect paper littering the portfolios of the funds, much of it anchored to commercial real estate and syndicated portfolios of consumer loans. As of mid-year 2008, 40% of outstanding corporate paper was held by money market mutual funds. The funds had taken on this paper as a way of trying to boost their yields and therefore gain a competitive advantage.
(snippet)
Money market fund guarantee program to end
By MARTIN CRUTSINGER (AP) – 4 days ago

WASHINGTON — The Obama administration said Thursday that a program used to guarantee as much as $3 trillion in money market mutual fund assets will end on schedule next week.

The program, which will be closed down on Sept. 18, had no direct cost to taxpayers and earned more than $1 billion in fees paid by the mutual fund industry, according to the Treasury Department.
LINK HERE