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Re: OT: How safe are money market funds?



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The Funkhousers wrote:

> Uninvested funds in your account are generally held by a brokerage
> firm in their name, albeit in your account, UNLESS you have instructed
> them to do otherwise.
>
> MOST brokerages will credit interest on these balances, although they
> are not required to do so, and the terms of these credits are  solely
> within their discretion.  If you have really substantial balances
> these rates are negotiable.  If the brokerage failed those balances
> would be subject to the SIPC coverage and any additional insurance
> that the brokerage had purchased to protect customer balances.
>
> SOME brokerages will optionally offer "sweep" facilities that
> automatically transfer uninvested balances into one or more money
> market mutual funds.  The frequency of "sweeps" and the minimum
> amounts required are determined by the brokerage as part of
> operational policy.  In order for a money fund to be used you must
> have signed an application for the fund and you must be furnished both
> a prospectus for the fund and its most recent periodic reports.  If a
> fund has been purchased with uninvested funds it will be shown as an
> investment position in your monthly statement as a investment
> position.
>
> All money funds are registered and as such full disclosure of all
> investment policies, objectives and expenses are provided via the
> prospectus.  The worth and/or assets of a money fund are NOT covered
> by either SIPC of private insurance.  Contrary to popular belief, more
> than one money fund has lost enough value so that the stated
> investment goal of maintaining a stable value of $1.00 per share
> failed.  In all of the cases of which I am aware the investment
> advisor or distributor has voluntarily made a contribution of capital
> so as to preserve the $1.00 value.
>
> For those who believe that the Fed and or the federal government can
> bail us all out in the case of a panic I would suggest the they read
> Secretary of the Treasury William Simon's "A Time For Truth."  The
> commercial paper market almost collapsed some time ago and fortunately
> the events which led to the panic occurred after the markets closed.
> By morning every Federal Reserve Bank had been told to make whatever
> loans their commercial customers needed the next day, regardless of
> terms  --  the Fed would buy them.  That quieted the markets the next
> morning but if it had not the inflation that would have followed would
> have caused our system to fail completely --  how about a dollar worth
> one cent.
>
> With the leverage in the system today who knows how many other
> countries would be pulled into the same vortex.
>
> Richard Funkhouser
>
> _Craig wrote:
>
>> When I ask my brokers about money market funds, I get less than
>> satisfying answers.  I ask them when I exit a position, where does
>> my money go?  Where do they park my money?  They say I get credit
>> earning interest in a money market fund.  When I ask more specific
>> questions about this money market fund, they essentially say, "it's
>> just a money market fund."
>