Do you have money in "money-market funds?" If so, you need to read this.
You have been hearing about a "mortgage meltdown" and a "credit crunch." You might have been wondering how this could affect you. Well, the mortgage and credit markets are part of what is sometimes broadly referred to as the "money market." Your money-market funds buy various types of "instruments" that generally offer higher yields than bank savings accounts. These instruments can include mortgage-backed securities.
Well, one money-market fund just asked for permission to stop redemptions. This means that the people who have money in that money-market fund will not be able to get their money out - at least for a while. From this news report, Sentinel management seeks to halt redemptions: report,
Sentinel, a money market mutual fund firm for commodities, has asked the U.S. Commodities Futures Trading Commission to allow it to halt client redemptions until it can conduct them in an orderly fashion, CNBC television reported on Tuesday.
"We had previously thought the market would return to some semblance of order and that our clients would not join in the panic," Sentinel wrote in a letter to clients CNBC said it had obtained. "Unfortunately this has not been the case."
Until things sort themselves out I suggest that you get at least a portion of your money into a safe, FDIC-backed account. If things melt down further you won't be able to get at it for a while, but eventually the government insurance will cover it. If it is not government insured you might just lose it -- because the insurance companies also have their money in these instruments.
Dave Johnson is a Senior Fellow with the Institute for the Renewal of the California Dream working on progressive messaging, and a Fellow at the Commonweal Institute, where he researches and writes about the activities of the conservative movement's network of foundations and think tanks and the extent of their influence on American society. Dave is on the Boards of Directors of Media Transparency and The People Choose, is an advisor to The Philanthropy Network and is a member of the Netroots Advisory Council of the Drum Major Institute. Dave is the lead blogger at Seeing the Forest. He is a featured contributor at Huffington Post and writes at many other sites including MyDD, AlterNet, Common Dreams, DailyKos and Speak Out California.
Mr. Johnson has over 20 years of technology industry experience and has previously held positions including CEO, and VP of Sales and Marketing. He specialized in grassroots "viral" marketing, direct mail, and Internet applications. His earlier career included technical positions in the technology industry, notably in video game design at companies including Atari and Imagic, and he was a pioneer in design and development of productivity and educational applications of personal computers. More recently Dave helped co-found Carbon Tracing, Inc., the company developing the desktop systems to validate carbon trading in the US.
One way the Fed manages the availability of credit is through the reserve requirement. The less banks have to keep on hand in the form of reserve requirements, the more they can lend out (and therefore the less they have on hand to meet any extraordinary demand for withdrawals.) Reserve requirements are at historical lows right now. Banks may elect to hold additional reserves for high cash demand periods (like for paying Christmas bills in January) but reserves plus voluntary additional reserves are typically less than 5% of the deposit base. This percent is based on statistical modeling that predicts how many depositors will want their money at any given time. The FDIC runs much in the same manner, collecting a nominal amount of premium from banks for deposit insurance coverage, calculated upon a statistical model of historical bank failures (how much they need on hand to pay out at any given time.) THIS MEANS THAT BANKS HAVE ABOUT 5% OF YOUR MONEY TO GIVE TO YOU AT ANY GIVEN TIME. I CANNOT ESTIMATE HOW MUCH THE FDIC HAS, IN TERMS OF PERCENT OF TOTAL ELIGIBLE DEPOSITS. What I do know is that it is NOT 100% of the national insured deposit base, and that what they DO have is NOT cash on hand.
I wonder if they are invested in derivative mortgage instruments?
Cheers!
by
Susan Guest (3 articles, 0 quicklinks, 0 diaries, 82 comments)
on Tuesday, August 14, 2007 at 2:14:06 PM
Curiosity was killing me, so I went and looked at the FDIC's balance sheet. The total assets of all FDIC insured financial institutions as of March 2007 were $11,998B ((almost twelve trillion.)) Of that, $4,257 were insured deposits. THE SIZE OF THE FDIC'S ASSETS ((cash available to pay depositors)) WAS $50.7 ((billion)) (ABOUT 12%.) Of that, $2 was in cash and $40 in US treasury bills.
But with 25 years to pay depositors off, they'll find the other 88% somewhere.
Is anyone still thinking our government is going to take care of us on any front??
by
Susan Guest (3 articles, 0 quicklinks, 0 diaries, 82 comments)
on Tuesday, August 14, 2007 at 3:33:56 PM
2 comments
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