Can someone help me out here?

In a addendum to a prospectus on Money Market Fund "Guarantees" by the US Treasury in response to the now global financial crisis/recession ...

Quote:

Participation in the Temporary Guarantee
Program for Money Market Funds

Under the Program, the Treasury will guarantee
the share price of shares of a Fund outstanding as of
September 19, 2008 at $1.00 per share if the Fund’s
net asset value falls below $0.995 (a “Guarantee
Event”). Recovery under the Program is subject
to certain conditions and limitations, including
the following:

• For each shareholder

<blah>
.
• The total amount of coverage available for all

<blah>

• Recovery under the Program requires a Fund
to liquidate.

•

<blah>

I believe normal brokerage TDW already lost more than .005 of NAV on it's money funds.

If all funds lost more than that and were to liquidate at the same time? That would mean they would all try to dump all their bonds.

It just doesn't make sense to me.

liq'uidate verb transitive to clear up or off (especially a debt); to wind up (a commercial firm, etc), bringing its trading to an end; to turn (assets) into cash; to dispose of; to wipe out, do away with (slang); to kill off (slang).

The insurance on money market funds guarantees the $1.00 for funds on deposit as of Sept. 19. Funds deposited after Sept 19 are not covered. This is a temporary measure that expires Dec 2009, at least as presently in the rescue plan.

http://www.ustreas.gov/press/releases/hp1163.htm

rincondog wrote:

http://www.ustreas.gov/press/releases/hp1163.htm

Well I do understand all that <blah> and what RCD says. What I DON'T understand is where the money comes for a liquidated money fund.

A 10 billion dollar fund loses a penny a share then must liquidate (sell) 9.9 Billion dollars worth of securities (DUMPING them on the market) in order to collect the missing penny per share?

I suppose the Treasury Dept. justs prints that 9.9 billion for a buyback of its treasuries, but there are other types of bonds. Who buys these liquidated securities?

Ponbkk wrote:

....Well I do understand all that <blah> and what RCD says. What I DON'T understand is where the money comes for a liquidated money fund.

A 10 billion dollar fund loses a penny a share then must liquidate (sell) 9.9 Billion dollars worth of securities (DUMPING them on the market) in order to collect the missing penny per share?

I suppose the Treasury Dept. justs prints that 9.9 billion for a buyback of its treasuries, but there are other types of bonds. Who buys these liquidated securities?

A money fund is usually investing in short term paper, either government or commercial and usually a mixtur of both.
If you look carefully at your prospectus it will tell you the "average maturity" of the holdings in the fund and they're usually less than 60 days.  Look deeper and they should have a list of all the holdings.  You will see a lot of 30, 60, 90 day issues and probably a lot of 10 day, 5 day and even 1 day stuff.
I would assume in the event of a liqidation they just wouldn't roll over the paper and the issuer would hand over the cash.  Anything longer than a few days or weeks and the fund company can just hold on to it until until it matures and pay the fund holders out of their pocket.
The government is only on the hook for the penny lost in value.

But you are getting very close to an understanding of something.  The "credit crisis" is being caused by the buyers of commercial paper not rolling over the paper when it matures and wanting their cash back.  The issuers don't have the cash on hand to pay off all the paper they wrote so that's why Lehman went under and Fanny and Freddie were in such trouble.

There just isn't enough money in all the governments in all the world to "cover" all the commerial paper outstanding.  This is why things are so desprate right now.  We've got to stop the panic and restore confidence so the paper can be "rolled over" and money starts flowing again.

homintern is on your IGNORE list.

just do as I do..spend spend spend ! You will have no worries about fees and such.

There IS a big sell. Sounds rather dangerous to me.

I just got an email from one of my big fund companies yeaterday after I posted saying they were now participating in the insurance program.
I also read a news item (can't remember where) that all the biggest money funds have taken the insurance option because they don't want their depositors to bail out thinking they weren't covered.

Interesting times we live in.

homintern is on your IGNORE list.