Federal money market fund guarantee set to expire next week on clarkhoward.com

CLARKONOMICS: A federal guarantee on money market funds set to expire next week should not signal you to panic and pull your money out.

Money-market funds have long been considered just about the safest place to stash cash. During the nearly 30 years of their existence, no one had ever lost a single penny in a money market fund…until last September.

At that time, Clark took a number of gut-wrenching calls from listeners who had money in one particular fund called the Reserve Fund. The Reserve Fund made silly bets with people's money and lost big in the Lehman Brothers collapse.

As a result, the Reserve Fund was forced to do something that's anathema to money market funds -- they "broke the buck" by devaluing shares below $1. That set off panic as people clamored to get their money out. As panic spread, the government stepped in with a federal guarantee that was ultimately extended through Sept. 18, 2009. Now that date is fast approaching.

Clark himself has money tied up in money market funds…and he's not changing anything if the guarantee ends as expected. He has no plans to move his money -- nor should you, in his estimation.

Consider that even in the worst scenario from last September, people's money was only marked down to 97 cents for every dollar. In Clark's words, "Your money was, is and will be safe."

What others are saying

Reserve Primary hasn't completely settled yet after a year
While the official closing price was 97 cents per share after when Reserve Primary fund broke the buck, they only paid about 91 cent per dollar so far and haven't given a time line on when they'll pay out the rest. If you google the news on it, they are keeping the fund until the 29 or so lawsuits are settled.

This fund was used by many large brokerage firms as their default money market fund chose. It was the oldest money market. Some brokers have stated they'll make it a $1/share but at least for the time being, I'm not aware of a single broker that has actually paid that out to this date. Of course, this claim was made when the assumption was it would be easy to get 97 cents/share from the fund itself. Now that that theory is shattered, I wonder if we (myself included) will ever get even 97 cents/dollar back.

To compound the issue, they took until sometime after January to even settle funds in the Reserve _Treasury_ fund. Imagine that. A fund that only invests in U.S. T-Bills took over 4 months to settle just because of issues of a different money market fund run by the same management company.

A lot of people were using these money market fund like an interest earning checking account. It's very convenient. The money can be used for paying regular bills using free electronic bill pay, get free Visa Check Card, and get competitive interest rates to savings account with no limits on number of checks per month. Might want to rethink this strategy if you may need that money in one year--stuff like this can and probably will happen at some point in the future--there's no changes to the regulation that I've seen that would prevent it from happening again except for this temporary guaranty from the federal government. Now that this is expiring, it is back to keeping banks and brokers separate and you might even think about keeping cash settlement account in a bank account rather than a money market fund.
By emikami @ 09/13/09 10:05:42 PMreport abuse
Health Insurance
Wow, I'm blown away. I'm a democrat and I actually agree with Clark Howard regarding health insurance. His plan might actually work! I wonder how his plan would affect Medicare. Hmmmmmm
By Marge @ 09/13/09 11:17:42 AMreport abuse
Too Much Government
Why did the government have to get involved with this? I say let the people withdrawl all their money from the banks and let them crash. From these ashes, a better financial system would have arison on its own. Some people would have lost their money because they didn't withdraw in time but the alternative is far worse. Free Markets are self healing and don't need the strong hand of the government telling it what to do.
By --Denny @ 09/10/09 11:45:10 PMreport abuse

Reserve Primary hasn't completely settled yet after a year

While the official closing price was 97 cents per share after when Reserve Primary fund broke the buck, they only paid about 91 cent per dollar so far and haven't given a time line on when they'll pay out the rest. If you google the news on it, they are keeping the fund until the 29 or so lawsuits are settled.

This fund was used by many large brokerage firms as their default money market fund chose. It was the oldest money market. Some brokers have stated they'll make it a $1/share but at least for the time being, I'm not aware of a single broker that has actually paid that out to this date. Of course, this claim was made when the assumption was it would be easy to get 97 cents/share from the fund itself. Now that that theory is shattered, I wonder if we (myself included) will ever get even 97 cents/dollar back.

To compound the issue, they took until sometime after January to even settle funds in the Reserve _Treasury_ fund. Imagine that. A fund that only invests in U.S. T-Bills took over 4 months to settle just because of issues of a different money market fund run by the same management company.

A lot of people were using these money market fund like an interest earning checking account. It's very convenient. The money can be used for paying regular bills using free electronic bill pay, get free Visa Check Card, and get competitive interest rates to savings account with no limits on number of checks per month. Might want to rethink this strategy if you may need that money in one year--stuff like this can and probably will happen at some point in the future--there's no changes to the regulation that I've seen that would prevent it from happening again except for this temporary guaranty from the federal government. Now that this is expiring, it is back to keeping banks and brokers separate and you might even think about keeping cash settlement account in a bank account rather than a money market fund.

By emikami @ 09/13/09 10:05:42 PMreport abuse

Health Insurance

Wow, I'm blown away. I'm a democrat and I actually agree with Clark Howard regarding health insurance. His plan might actually work! I wonder how his plan would affect Medicare. Hmmmmmm

By Marge @ 09/13/09 11:17:42 AMreport abuse

Too Much Government

Why did the government have to get involved with this? I say let the people withdrawl all their money from the banks and let them crash. From these ashes, a better financial system would have arison on its own. Some people would have lost their money because they didn't withdraw in time but the alternative is far worse. Free Markets are self healing and don't need the strong hand of the government telling it what to do.

By --Denny @ 09/10/09 11:45:10 PMreport abuse

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Sep 10, 2009 -- Federal money market fund guarantee set to expire next week

What others are saying