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You are entirely correct when you note that the portfolios of most money
funds are invested heavily in commercial paper rather than mortgage pools.
The problem is that the issuers of the commercial paper are in some (say
many of them) cases themselves impaired (say structured investment
vehicles, etc.) and the commercial paper market has itself become
problematic. (Say I can't find buyers for the paper that I need to sell
to refund what I've already got outstanding there.)
If you want to see more look at the Fed's web site
(www.federalreserve.gov/releases/cp/) and look at the drop in financial
paper outstanding and the spread in rates required to move the product.
Though not frozen that market surely isn't liquid, and if issuers
can't sell new they have only the reluctant banks (who have their own
problems) to fall back on.
I'm not a pessimist either, but the reality of the situation does cause
one pause. Maybe it's time for all of us to reread William Simon's (ex
Treasury head) "A Time For Truth."
Richard Funkhouser
DH wrote:
Me too. Personally, I don't share the doom and gloom about money market
funds going below par but maybe I'm an incurable optimist. ;) Aside from
the sub-prime real estate market, I think we've see worse times in
recent years and MM funds did just fine through all that. Most MM funds,
IMHO, are more exposed to commercial paper (stock market) than real
estate.
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