There are some warnings being issued from the blog-o-sphere regarding global money market funds. It seems they are under pressure with withdraws, presumably from the Greek Debt Crisis. We have had other mini-runs the past few months (every time there is a hiccup in the PIIGS debt situation).
This one might actually cause some problems. Jim Sinclair has a warning on his site.
The Wall Street Examiner ran this yesterday.
If you remember, the last time there was a run on the money market funds, all corporate short-term credit stopped and thus daily functions stopped. The Fed and Treasury started lending huge amounts of cash overnight just to keep companies like GM and GE open on a daily basis.
Corporations and retail short-term money lenders use money market funds to lend companies short-term cash (among other things) to run their businesses, pay their employees, buy raw materials, etc. Like a credit card that you pay at the end of each month that you put all your business expenses on. Imagine if that credit card got rejected in the middle of the month and your customers weren’t going to pay you for another 30 days?
The last run also caused the FDIC to release a statement that they would cover any money market bank account losses to keep small investors from withdrawing their cash from the US Banks. Banks sweep their individual money market accounts each night and hand it over to these larger funds for a higher return on the money. That’s why you get that “huge” return of 1.2 % on money market accounts and that is also why they are not normally covered by the FDIC bank account insurance. If you read the fine print on your mm account, it will say that may have to wait to receive your money because it is in an outside fund and not part of the bank’s accounts.
Don’t panic. Just understand the risks. The last time this happened some people were waiting up to 6 months for their all money market money. GG doesn’t think you will lose your money, you just may have to wait for it or wait for all of it. So, the solution would be have some cash at home and some savings in a regular bank account (or in a couple of banks) in case a major run happens and you need money right now. Based on past experience in 2008-2009, you should already have your liquid cash savings organized in this way. (Side musing: you don’t need all your cash savings split up this way if you don’t want to, just enough for a few months worth of living expenses in case funds should become suddenly “tied up”.)
I hope you are cluing in to the fact that NOTHING IS FIXED and the same things that happened in 2007-2009, will happen again. So, if you were lolled into a false sense of security and have not prepared, do so now.