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This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

Submitted by Tyler Durden on 01/03/2010 12:01 -0400

When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.

A brief primer on money markets

A very succinct explanation of what money markets are was provided by none other than SEC's Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:

Money market funds were founded nearly 40 years ago. And, as is well
known, one of the hallmarks of money market funds is their ability to
maintain a stable net asset value — typically at a dollar per share.

In the time they have been around, money market funds have grown
enormously — from $180 billion in 1983 (when Rule 2a-7 was first
adopted), to $1.4 trillion at the end of 1998, to approximately $3.8
trillion at the end of 2008, just ten years later. The Release in front
of us sets forth a number of informative statistics but a few that are
of particular interest are the following: today, money market funds
account for approximately 39% of all investment company assets; about
80% of all U.S. companies use money market funds in managing their cash
balances; and about 20% of the cash balances of all U.S. households are
held in money market funds. Clearly, money market funds have become
part of the fabric by which families, and companies manage their
financial affairs.

When the Reserve fund broke the buck, and it seemed like an all-out rout of money markets was inevitable, the result would have been a virtual elimination of capital access by everyone: from households to companies. This reverberated for months, as the also presumably extremely safe Commercial Paper market was the next to freeze up, side by side with all traditional forms of credit. Only after the Fed stepped in an guaranteed money markets, and turned on the liquidity stabilization first, then quantitative easing spigot second, did things go back to some sort of new normal. However, it is only a matter of time before the patchwork of band aids holding the dam together is once again exposed, and a new, stronger and, well, "improved" run on the electronic bank materializes. It is precisely this contingency that the SEC and the administration are preparing for by "empowering money market fund boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders."

A little more on money markets:

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds, in the United States, are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.

Ironically, the proposed change to Rule 2a-7 seeks to make dramatic changes to the composition of MMs: from 90 days, the WAM would get shortened to 60 days. And this is occurring at a time when the government is desperately seeking to find ways of extending maturities and durations of short-term debt instruments: by reverse rolling the $3.2 trillion industry, the impetus will be precisely the reverse of what should be happening, as more ultra-short maturity instruments are horded up, leaving a dead zone in the 60-90 day maturity window. Some other proposed changes to 2a-7 include "prohibiting the funds from investing in Second Tier securities, as defined in Rule 2a-7. Eligible securities would be redefined as securities receiving only the highest, rather than the highest two, short-term debt ratings from a requisite nationally recognized securities rating organization. Further, money market funds would be permitted to acquire long-term unrated securities only if they have received long-term ratings in the highest two, rather than the highest three, ratings categories." In other words, let's make them so safe, that when the time comes, nobody will have access to them. Brilliant.

The utility of money market funds has long been questioned by such systemically-embedded financial luminaries as Paul Volcker (more on this in a minute). After all, what are money markets if merely an easy, and 401(k)-eligible option to not invest in equity or bonds, but in "paper" which is cash in all but name (maybe not so much after the proposed Rule change passes). And as money markets account for a huge portion of the $11 trillion of mutual fund assets as of November (per ICI, whose opinion, incidentally, was instrumental in shaping future money market policy), $3.3 trillion to be precise, and second only to stock funds at $4.8 trillion, one can see why an administration, hell bent on recreating a stock-price bubble, would do all it can to make money markets extremely unattractive. In fact, the current administration has been on a roll on this regard: i) keeping money market rates at record lows, ii) removing money market fund guarantees and iii) and even allowing reverse repos to use money markets as sources of liquidity (because we all know that the collateral behind the banks shadow banking arrangement with the Fed are literally crap; as we have noted before, we will continue claiming this until the Fed disproves us by opening up their books for full inspection. Until then, yes, the Fed has lent out hundreds of billions against bankrupt company equity, as we have pointed out in the past). Money Markets are the easiest recourse that idiotic class of Americans known as "savers" has to give the big bank oligarchs, the Fed and the bubble-inflating Administration the middle finger. As you will recall, recently Arianna Huffington has been soliciting all Americans do just that: to move their money out of the tentacles of the TBTFs. In essence, the money market optionality is precisely the equivalent of moving physical money from TBTFs to community banks in the "shadow economy." Because where there is $3.3 trillion out of $11, there could easily be $11 trillion out of $11, which would destroy the whole concept of Fed-spearheaded asset-price inflation, and would destroy overnight the TBTFs, as equities would once again find their fair value. It is no surprise then, that the current financial system, and its political cronies loathe the concept of Money Markets, and have done all they could to make them as unattractive as possible. Below is a chart of the Net Assets held by all US money market funds and the number of money market mutual funds since January 2008:

Obviously, attempts to push capital out of MMs have succeeded: after peaking at $3.9 trillion, currently money markets hold a two year low of $3.27 trillion. Furthermore, the number of actual money market fund operations has been substantially hit: from 2,078 in the days after the Lehman implosion, this is now down to 1,828, a 12% reduction. At this rate soon there won't be all that many money market funds to chose from. While the AUM reduction is explicable through the previously mentioned three factors, the actual reduction in number of funds is on the surface not quite a straightforward, and will likely be the topic a future Zero Hedge post. Although, the impetus of managing money when one can return at most 0.6% annually, and charge fees on this "return" may be missing - the answer may be far simpler than we think. Why run a money market, when the Fed will be happy to issue you a bank charter, and you can collect much more, risk free, courtesy of the vertical yield curve.

Yet what is strange is that even with all the adverse consequences of holding cash in Money Markets, the total AUM of this "safest" investment option is still substantial, at nearly $3.3 trillion as of December 30, a big decline yes, but a decline that should have been much greater considering even the president since March 3 has been beckoning his daily viewership to invest in cheap stocks courtesy of low "profit and earning ratios" (that, and the specter of President's Working Group on Financial Markets). Could this action, whereby investors will no longer have access to money that historically has been sacrosanct and reachable and disposable on a moment's notice, be the last nail in the coffin of money markets? We believe so, however, we are not sure if it will attain the desired effect. With an aging baby boomer population, which would rather burn their money than invest in the stock market again and relive the roller-coaster days of late 2008 and early 2009, the plan may well backfire, and result in even more money leaving the shadow system and entering such tangible objects as deposit accounts (at community banks, of course), mattresses and socks. And speaking of the President's Working Group...

The Group of Thirty

When discussing the shadow economy, it is only fitting to discuss the shadow decision-makers. In this regard, the Group of 30, is to the traditional economic decision-making process as the President's Working Group is to capital markets. Taken from the website, the self-description reads innocently enough:

The Group of Thirty, established
in 1978, is a private, nonprofit, international body composed of very senior
representatives of the private and public sectors and academia. It aims to
deepen understanding of international economic and financial issues, to explore
the international repercussions of decisions taken in the public and private
sectors, and to examine the choices available to market practitioners and policymakers.

The Group's members meet in plenary sessions twice a year with select guests
to discuss important economic, financial and policy developments. They reach
out to a wider audience in seminars and symposia. Of most importance
to our membership and supporters is the annual International
Banking Seminar.

Sounds like any old D.C.-based think tank... until one looks at the roster of members:

Paul A. Volcker, Chairman of the Board of Trustees, Group of Thirty, Former Chairman, Board of Governors of the Federal Reserve System
Jacob A. Frenkel, Chairman, Group of Thirty, Vice Chairman, American International Group, Former Governor, Bank of Israel
Jean-Claude Trichet, President, European Central Bank, Former Governor, Banque de France
Zhou Xiaochuan, Governor, People’s Bank of China, Former President, China Construction Bank, Former Asst. Minister of Foreign Trade
Yutaka Yamaguchi, Former Deputy Governor, Bank of Japan, Former Chairman, Euro Currency Standing Commission
William McDonough, Vice Chairman and Special Advisor to the Chairman, Merrill Lynch, Former Chairman, Public Company Accounting Oversight Board, Former President, Federal Reserve Bank of New York
Richard A. Debs, Advisory Director, Morgan Stanley, Former President, Morgan Stanley International, Former COO, Federal Reserve Bank of New York
Abdulatif Al-Hamad, Chairman, Arab Fund for Economic and Social Development, Former Minister of Finance and Minister of Planning, Kuwait
William R. Rhodes, Senior Vice Chairman, Citigroup, Chairman, President and CEO, Citicorp and Citibank
Ernest Stern, Partner and Senior Advisor, The Rohatyn Group, Former Managing Director, JPMorgan Chase, Former Managing Director, World Bank
Jaime Caruana, Financial Counsellor, International Monetary Fund, Former Governor, Banco de España, Former Chairman, Basel Committee on Banking Supervision
E. Gerald Corrigan, Managing Director, Goldman Sachs Group, Inc., Former President, Federal Reserve Bank of New York
Andrew D. Crockett, President, JPMorgan Chase International, Former General Manager, Bank for International Settlements
Guillermo de la Dehesa Romero, Director and Member of the Executive Committee, Grupo Santander, Former Deputy Managing Director, Banco de España, Former Secretary of State, Ministry of Economy and Finance, Spain
Mario Draghi, Governor, Banca d’Italia, Chairman, Financial Stability Forum, Member of the Governing and General Councils, European Central Bank, Former Vice Chairman and Managing Director, Goldman Sachs International
Martin Feldstein, Professor of Economics, Harvard University, President Emeritus, National Bureau of Economic Research, Former Chairman, Council of Economic Advisers
Roger W. Ferguson, Jr., Chief Executive, TIAA-CREF, Former Chairman, Swiss Re America Holding Corporation, Former Vice Chairman, Board of Governors of the Federal Reserve System
Stanley Fischer, Governor, Bank of Israel, Former First Managing Director, International Monetary Fund
Philipp Hildebrand, Vice Chairman of the Governing Board, Swiss National Bank, Former Partner, Moore Capital Management
Paul Krugman, Professor of Economics, Woodrow Wilson School, Princeton University, Former Member, Council of Economic Advisors
Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Economics, Harvard University, Former Chief Economist and Director of Research, IMF

and, of course:

Timothy F. Geithner, President and Chief Executive Officer, Federal Reserve Bank of New York, Former U.S. Undersecretary of Treasury for International Affairs
Lawrence Summers, Charles W. Eliot University Professor, Harvard University, Former President, Harvard University, Former U.S. Secretary of the Treasury

and many more. Given the choice of being a fly on the wall at a G7 meeting or that of the "Group of 30", we would be very curious to see who would pick the former over the latter. These are the people, whose "reports" and groupthink determines the financial fate of the world: their vested interest in perpetuating the status quo is second to none. Which is why we read with great interest a recent paper from the Group of 30: Financial Reform, A Framework for Financial Stability, released on January 15, 2009, deep in the heart of the crisis. While the paper has enough insight for many, non-related posts (we are already working on several), we will focus on the policy recommendations presented for money market funds.

Money Market Mutual Funds and Supervision

Recommendation 3:

a. Money market mutual funds wishing to continue to offer bank-like services, such as transaction account services, withdrawals on demand at par, and assurances of maintaining a stable net asset value (NAV) at par should be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities.

b. Those institutions remaining as money market mutual funds should only offer a conservative investment option with modest upside potential at relatively low risk. The vehicles should be clearly differentiated from federally insured instruments offered by banks, such as money market deposit funds, with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV. Money market mutual funds should not be permitted to use amortized cost pricing, with the implication that they carry a fluctuating NAV rather than one that is pegged at US$1.00 per share.

The phrasing of "with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV" should be sufficient to whiten the hairs of every proponent of money markets as a "safe" investment alternative. Yet what the SEC has done, is to take the Group of 30 recommendation, and take it to the next level: not only will funds not have explicit assurance of any kind vis-a-vis funding, but in fact, the redemption of said funds would be legally barred upon "extraordinary circumstances."

Rule 22e-3

From the SEC:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.

Lots of keywords there: "fiduciary", "impose hardships" but most notably "permit us to take steps to protect investors." Uh, SEC, no thanks. We can protect ourselves. Your protection so far has resulted in the Madoff scandal, the BofA fiasco, billions in insider trading profits and not one guilty person, who did not manage to escape unscathed with merely a wrist slap in the form of some pathetic fine. With all due respect, SEC, any proposal that involves you acting to "protect" us should be immediately banned and any further discussion ended.

Especially in this case: what the SEC is proposing is simple - the entire market structure has been converted to a hedge fund. When investors hear the word "suspend redemptions" they envisioned a battered, pro-cyclical, leveraged, permabullish hedge fund, that suddenly "found itself" down 30, 40, 50 or more percent, and to avoid instantaneous liquidation, had to bar redemptions. Forgive us, but is the SEC confirming that the entire market is now one big casino, one big government subsidized hedge fund, where as long as things go up, all is good, but the second things take a leg down, just like any ponzi, nobody will be allowed to pull their money? Maybe Madoff should have created the same redemption suspension: his fund would still be alive and thriving, now that the government has become the biggest ponzi conductor of all time. And nobody would have been the wiser. But instead, the Securities and Exchange Commission, in discussions with the Group of 30, Barney Frank, and any other conflicted individuals who only care about protecting their own money for one more year, has decided, in its infinite wisdom, to make money markets a complete scam. And this is the gist of regulatory reform in America.

Conclusion

At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that "price discovery" occurs all at once, and at the very same time. And all too often, investors "discover" they were lied to, as the emperor, in any fiat system, always has no clothes. Just like in September 2008, when the banks were forced to look at each-others' balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman's FICC trading axes would have resulted in the "Ice-Nine'ing" (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman's EPS. But we will never know. What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of "last fool in", holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.

h/t Geoffrey Batt

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Tue, 01/05/2010 - 01:01 | 182705 WaterWings

Uh...yeah. We survivalists are just the first ones to the party - and we brought our own flasks so even if the cash bar ain't open yet we're having a riot. You can have fun with us too! And post whatever you like! But this ship has already sailed.

Tue, 01/05/2010 - 06:50 | 182832 Seer

Huffington Post, ha ha! That's funny!

Listen, TPTB know bloody well what's going on. They know that their life of living off the rest of us is in peril and they aren't going to give up so easily. Speaking truth to power is senseless- power already knows!

Further, and try to keep this a secrect because it seems like it's working so far- IT'S THE SYSTEM! Look up the definition of Ponzi Scheme. Now look up exponential growth. THE SYSTEM REQUIRES UN-ENDING GROWTH, WHICH, THEREFORE, MAKES IT A PONZI SCHEME, SOMETHING THAT IS GUARANTEED TO FAIL!

Why did I shout? Because you think that it is wiser to talk about economics and of things related to a ponzi scheme rather than things of value when people here are trying to preserve value. I don't know, maybe you are in the wrong place? No you say? You're just looking for the tip to make you more FRNs? when the more you make the more you help push this Ponzi scheme closer to the ledge?

No. I've been following this stuff for years, from every freaking angle and I, without hesitation, can state that most of the folks here get it! (though some still cling on to what will in the future be viewed as silly political notions)

In closing I will provide what has become my favorite political quote:

Do people demand a really just system? Well, we'll arrange it so that they'll be satisfied with one that's a little less unjust ... They want a revolution, and we'll give them reforms -- lots of reforms; we'll drown them in reforms. Or rather, we'll drown them in promises of reforms, because we'll never give them real ones either!!

DARIO FO, Accidental Death of an Anarchist

Mon, 01/04/2010 - 14:34 | 182150 Anonymous

Chumba (or anyone, really):

I'm a bit late to the PM game (though hopefully not fatally so), and would like to know the best means to acquire physical PMs. Online? Local dealer? Supposing I wanted to do so, how can I buy physical PMs today?

And what of allocation? If I had, say, $10K to allocate to PMs, what would be an optimal allocation of Ag, Au, etc?

I've been in the process of acquiring the three biggies (food, shelter, protection) and am now turning my attention to preserving what little wealth I've managed to accumulate. Any wealth preservation advice - PM or otherwise - is of course welcome and appreciated.

Many thanks in advance.

Mon, 01/04/2010 - 14:41 | 182164 Anonymous

The whole system is a PONZI racket-but think about a PONZI scam that you are STUCK IN. Ponzis are typically illegal, unless run by a inept and corrupt government.
The currency is valueless in reality-it's basically an overvalued bankrupt penny stock that is getting more refloats every week.
The banks and "right" people get a constant % of the devalued shares of the United States Inc. Those of us who have saved are getting our "shares" devalued by the increased float of "shares" via bonds and illegal monetization.
BUT, you can't do anything. You can't trade your shares except for other shares of pointless investments like the DOW,SP. You could be in commodities, but those investments are fake and counterfeited(see GATA.) If you can find real gold, expect to have it confiscated in about 3 years so the US can sell it off to India and China to pay off their bond debt.
Other currencies are like the dollar-fiat and unbacked. Maybe Canada and Australia have better fiscal discipline.
YOU ARE STUCK,STUCK,STUCK. Stuck with a denuded constitutional system,a hapless and bought representative branch, a euro-socialist lawyer as President and the banks running the monetary system for their own benefit. You are also stuck with the most uneducated American civilian force in history-the dumbest overconsumers of all time.
If you give a toss, don't vote for major parties ever again and vote with your feet. Leave the country and covert your dollars in for whatever you think is safer than a money market account with Robin Hood eyeing it.

Tue, 01/05/2010 - 06:55 | 182833 Seer

Another option would be to be debt free and have a very small foot-print, one that contributes (in a tax way) very little to keep this deranged engine going. After all, as they say in real estate: location, location, location... the government will eventually go away, the land will be here (and be usable) for a bit longer.

BTW - I'd hardly equate Obama as a European Socialist type: and any Europeans here should back this up. No, he's a full-fledged corporate fascist type.

Mon, 01/04/2010 - 14:41 | 182165 cocoablini

Mon, 01/04/2010 - 18:09 | 182407 Youri Carma

BY 2012 THE DOLLAR WLL BE DEAD - More Prove on the statement made 19 October 2009 by Lindsey Williams http://tinyurl.com/ye43zrn

Mon, 01/04/2010 - 18:32 | 182436 bugs_

Only 3 days into the new year and you already

have a best-of-2010 candidate TD.

Mon, 01/04/2010 - 18:45 | 182449 Mark Beck

IMHO, a bank run is unlikely with the unlimited FDIC FED backed resources. MM accounts are covered by FDIC insurance, or as I like to say, FED money creation unlimited. ---------- http://www.fdic.gov/consumers/consumer/information/fdiciorn.html ---------- Mark Beck

Mon, 01/04/2010 - 19:09 | 182470 cocoablini

I thought money markets were self-insured(ala AIG) by the SIPC-which is not the federal insurance but the consortium.

But does it matter? The SIPC,FIDC are broke anyways-living a mirage of trust. You knew there was a problem when money markets stopped new purchases of treasury-backed money markets. If you owned one already(at least 10k) you could buy more. Otherwise, regular money markets are pretty fracking scary to begin with. Even the Fidelity people are like," Money markets are for transitions-not storage. May I offer you a nice CD?" I have enough MM cash to buy equities or ETFS but it's best to be in an FDIC bank than an insured account like an SIPC money market. The USG backed money markets during the crash but not anymore as I understand it. In the summer they cut them loose and back to the SIPC-a total joke if more than one broker ate dust. If you have a ton of cash, break it up into small allotments and pass to a variety of FDIC banks or buy assets to hold in your hands. I may try goldmoney.com just because James Turk is ethical-not because he is backed by the FDIC

Mon, 01/04/2010 - 19:22 | 182479 Anonymous

if you missed it from earlier in the thread

a suitable logo?

http://i45.tinypic.com/erwx2p.jpg

Mon, 01/04/2010 - 21:07 | 182560 mkkby

Interesting comments. A few observations:

1. How can the US devalue the currency instantly? It is not pegged to anything, so what would be the mechanism?

2. Isn't it a contradiction to believe the bankers rule the roost, and that a dollar devaluation is in the cards? After all, it would destroy debt and reward the debtor. That sounds unlikely in a banker-ruled world.

3. Whenever a crisis hits, the US dollar rises as a safe haven. True? That is because the world believes that while the US is f***ed up, everyone else is riskier, either by their own flaws or by a much smaller size.

4. Isn't it obvious that we can't have fractional reserve lending, AND the ability for everyone to withdraw their deposits at once? It seems to me proposed rules like this are obvious, and not (necessarily) some evil scheme to enslave us. If only to avoid intentional meltdowns by organized boycotts.

Tue, 01/05/2010 - 07:04 | 182834 Seer

I don't necessarily believe that there's some big conspiracy to enslave us. The conspiracy is just in perpetuating the ruling class(es). As far as growth-based systems go, capitalism (which, when you peel everything back is what is at work here) is the best; and as such, it will be the best to getting us to the ledge: quicker at extracting and using up resources.

When you consider that the average US citizen lives better than many kings of yesteryear then it becomes aparent that the system did deliver us that dream. Unforutnately it's not sustainable...

I have come to accept all of this, and even forgive some of TPTB (some are ignorant, yes, some probably don't understand issues of growth and actually believe that a rising tide could lift all boats). In the end it matters little, as there will be a reversion. What we have to understand above all is that we cannot accept levels of consumption that cannot be sustained.

Tue, 01/05/2010 - 15:30 | 183231 Ripped Chunk

http://www.youtube.com/watch?v=0BlpPriEKCA

How much will the wealth and power structure matter in 50 to 80 years???

Mon, 01/04/2010 - 21:47 | 182585 Rusty Shorts

"ARITHMETICUS." Virginia, Nevada.--"If it would take a cannon-ball 3 and 1/3 seconds to travel four miles, and 3 and 3/8 seconds to travel the next four, and 3 and 5/8 to travel the next four, and if its rate of progress continued to diminish in the same ratio, how long would it take it to go fifteen hundred million miles?"

I don't know.

- Mark Twain 1865

Tue, 01/05/2010 - 02:36 | 182764 Anonymous

At some point between your 3 and 5/8 seconds on the mile the cannon ball will degrade in time/velocity.

All things considered, there is a zero somewhere in the world. Usually in your cannonball case, gravity pulls on the ball and zeros it at the ground.

I am watching the BIG cannon ball flying over wallstreet and the DC with a sense of horror. I wont want to be under this big ball when the money stops.

Mon, 01/04/2010 - 23:30 | 182650 Anonymous

Thanks for that, ZH.
Actually, all this is "Old News" - I believe it was here (at ZH) that I read all that stuff about the US govt. DEMANDING ALL GOLD held by Americans, and of course a seldom mentioned facet of the benign sounding "BANKING HOLIDAY" enacted by President Roosevelt, was that after "the holiday" many Americans went to the bank to get their deposits out - only to find that those banks had been closed forever.
And that was under FDR - a president with a soul, or at least a shred of empathy with "the little people."
This government - whether under pseudo- "Democrats" like Emanuel,Obama, & Rubin, or under Rethuglicans like Cheney, Greenspan, Bernanke, Paulson, etc. - is acting more and more like a Chinese bandit regime.

Tue, 01/05/2010 - 16:10 | 183262 Anonymous

The unintended consequences of exponential curves comes home to roost. Compound interest without concomitant destruction does not work. Deflation will asset strip mortgaged homeowners. All populations are ruled, more or less, by their own permission. CONfidence peddling keeps the lid on the pot. The corrupt rulers at the top have encountered a 'perfect' storm of compound interest mathematics, relative resource scarcity (oil), foreign political opposition, domestic intransigence (yet to erupt). The next population nest to raid will be the derivative paper assets in IRAs and 401s. These piles of 'wealth' were engineered with enticements (tax-breaks), and the CONfidence game for the populace, that protected/safe wealth is attainable without actual ownership/control. A rush to the exits can not be permitted. Gold (the 4th currency) is still part of the reserves of most central banks. The Chineese are encouraging their population to move savings into gold. The Argentinian robbery was done through delinking a derivative (peso) and inflation. The massive engineered stimulus in the stock market props the CONfidence for the IRA/401 pool. Cannot permit that dam to burst. Physical Gold in the hand will remain viable for some time.

Tue, 01/05/2010 - 22:57 | 183808 Anonymous

@mkkby

1. How can the US devalue the currency instantly? It is not pegged to anything, so what would be the mechanism?

Us currency is indexed to 5 other currencies. "Instantly" happens all the time on the currency markets.

2. Isn't it a contradiction to believe the bankers rule the roost, and that a dollar devaluation is in the cards?
After all, it would destroy debt and reward the debtor. That sounds unlikely in a banker-ruled world.

No. Devaluation is devaluation. At the moment "creditor" nations are not purchasing US debt, ie, US Treasuries. Only
the Federal Reserve is purchasing Treasuries (debt) which increases the script in circulation, which is a precursor to
inflation.

3. Whenever a crisis hits, the US dollar rises as a safe haven. True? That is because the world believes that
while the US is f***ed up, everyone else is riskier, either by their own flaws or by a much smaller size.

No. This is a crisis. The "save haven" is no longer. Other countries are no longer buying our Treasuries (debt).
China is exchanging "dollars" for commodities as is Russia. Middle Eastern countries are trading in Euros and
have setup a gold backed exchange. China is negotiating a Southern Asia monetary exchange.

Do a search for China in Afganistan to get a clue (no animosity intended).

4. Isn't it obvious that we can't have fractional reserve lending, AND the ability for everyone to withdraw their
deposits at once? It seems to me proposed rules like this are obvious, and not (necessarily) some evil scheme to
enslave us. If only to avoid intentional meltdowns by organized boycotts.

Fractional reserve lending is the act of creating currency from nothing; it is the creating of debt without backing
by anything tangible.

To wit: I'm a bank. I have on deposit $10. Fractional reserve lending allows me to lend 90% of deposits. I lend
you up to $9. I still have $1 not "covered," but I have your $9 as collateral. Keep the chain of lending and
collateral going. I'm not certain of the exact figure, but I've created nearly 9 times "money" than I can cover.

That's where the US is at now.

"Money" created from nothing. "Money" created as debt and no money put into circulation except as debt. Look at
any bill in your wallet. It is "legal tender," script, not money. Lookup "redeemable in gold" and on the Treasury
website the weasel words: http://treasury.gov/education/faq/currency/legal-tender.shtml

What do I mean by that? Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240 (1935)

Up is down.

OH, the MACHINE asked "22 plus WHAT = 5" I answered -17;
told that it was wrong. Hmmm.

Sat, 01/09/2010 - 11:44 | 188362 Anonymous

If you are worried about money market funds, you only need to look at stable value funds and what happened to Chrysler workers. They were paid out 89 cents on the dollar: http://bit.ly/5KzeJ6

Thu, 01/14/2010 - 13:54 | 193917 blueskyscottsdale

another tactic employed by the US government to obfuscate and delay facing the inevitable which is a sharp curtailment of federal spending. The political mutants are now running after our money markets. What a retarded government. Makes me want to move to Norway.

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This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

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