[movermike] movermike: Money Market Funds Hold Asset-Backed Paper

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Posted by movermike:
Money Market Funds Hold Asset-Backed Paper
http://www.movermike.com/posts/1186639871.shtml


   [StockColor.GIF]

   Karen Richardson and David Reilly write in Thursday WSJ that [1]Money
   Funds May Hold Subprime, Too.

   Money Market Funds, those investments where you can park cash with no
   penalty for withdrawal, invest their assets in certificates of deposit
   and commercial paper. The commercial paper market is about $2.2
   Trillion in size and Richardson and Reilly inform us that about half
   of that is asset-backed commercial paper.

   Wall street has invented "conduits."

     These (conduits) vehicles issue asset-backed commercial paper and
     potentially allow banks and other financial institutions to push
     risky loans off their books.

     [...]

     The problems for the asset-backed commercial paper market began
     earlier this week when three conduit vehicles said they wouldn't be
     able to redeem paper coming due and instead would have to extend
     the maturity of the notes.

   That is big trouble for money market funds. A loss in value drops
   yields on the funds or forces investors seeking high liquidity into
   being long term holders with little or reduced liquidity.

   The scary part of the article is the comment by Jon Thompson,
   investment officer of structured finance at Advantus Capital
   Management, which has $18 billion in assets, including money-market
   funds.

     "The fact that some residential mortgage-related conduits have
     stopped issuing paper and some are extending past their maturity
     dates signals you're in the first part of some trouble." (My
     emphasis)

   The fed officials say not to worry.

     President Bush shrugged off concerns about stock-market turmoil,
     saying Wall Street is adjusting to a flood of liquidity and is
     beginning to "readjust its assessment of risk."

   Well, I'm worried!

   [2]Asset-backed commercial paper [3]Mortgages [4]Mover Mike

References

   1. http://online.wsj.com/article/SB118661509601392327.html?mod=hps_us_whats_news
   2. http://technorati.com/tag/Asset-backed+commercial+paper
   3. http://technorati.com/tag/Mortgages
   4. http://technorati.com/tag/Mover+Mike