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96-Cent on the Dollar Money Market Fund

SHELLY avatar
SoWal Insider
2,631 views
:eek: OUCH!


GE money fund redeeming 96 cts on dollar
Barron's
Wed Nov 14, 2007 6:37pm EST

NEW YORK, Nov 14 (Reuters) - A $5 billion money market fund run by General Electric Co's (GE.N: Quote, Profile, Research) asset management unit is offering investors an option to redeem their holdings at 96 cents on the dollar, Barron's Online reported on Wednesday, becoming the latest casualty of turmoil in U.S. mortgage and credit markets.

The GEAM Trust Enhanced Trust fund's assets primarily come from GE's pension trust and other GE employee benefit plans, Barron's said. In a Nov. 8 e-mail to institutional investors, GE Asset Management said "extreme conditions in the credit markets" are forcing the fund to sell securities at a loss, according to Barron's.

It is extremely rare for money market mutual funds -- which are designed to maintain a constant $1 per share net asset value but lack federal deposit insurance -- to lose principal. In 1994, the $100 million Community Bankers U.S. Government Money Market Fund gave investors back just 94 cents on the dollar.

In recent weeks, Bank of America Corp (BAC.N: Quote, Profile, Research), Legg Mason Inc (LM.N: Quote, Profile, Research) and other fund sponsors stepped in to support money funds. Letting a money fund lose principal would likely damage a sponsor's reputation and prompt investor withdrawals.

GE representatives were not available for immediate comment.
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The government and Wall Street said that the subprime problems were "contained," so I guess there's nothing to see here folks--keep moving along.


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Replies

13
Capricious avatar
Beach Fanatic
#2
Yeh, I saw a day or two ago where a couple of other money market
funds were being "injected" to keep from "breaking the buck."

This crap aint over yet.

I posted over in the "politics" section where some school district
money (in Florida and elsewhere) is probably at risk (probably gone,
actually: just not "recognized" yet.)

We are looking @ recession, big-time.

I am heavy into "cash" waiting for stocks to tank, but where is
"cash" safe anymore?

On the short-term ( a few years) things are going to get nasty, but
being the eternal Polly Anna things will eventually turn-around
Beach Fanatic
#3
94 cents on the dollar is a slot machine return.
scooterbug44 avatar
SoWal Expert
#4
Money Market Funds are completely different from a Money Market bank account, right?
Capricious avatar
Beach Fanatic
#5
Bank money market accounts are USUALLY FDIC-insured, while
money market funds are not insured.
scooterbug44 avatar
SoWal Expert
#6
That's what I thought, but figured better safe than sorry!
Beach Lover
#7
FDIC insurance comes into play only after a Bank goes under. FDIC insurance will not help you if the Bank remains solvent yet cannot pay a positive return on money market funds. Wachovia and BofA recently added funds to keep money market funds from earning negative returns. GE has evidently decided not to prop up the money market funds.

Hope this helps.

Little Fish
scooterbug44 avatar
SoWal Expert
#8
My money is in my hometown bank in another state, so it's safe. They don't even issue mortgages outside their county.

As my father put it "We're not really having any problems, because they didn't get caught up in the whole subprime frenzy, just kept lending money to folks who could pay it back."

Crazy business practices like that is why they have most of my bank accounts there. :wub:
Capricious avatar
Beach Fanatic
#9
FDIC insurance comes into play only after a Bank goes under. FDIC insurance will not help you if the Bank remains solvent yet cannot pay a positive return on money market funds. Wachovia and BofA recently added funds to keep money market funds from earning negative returns. GE has evidently decided not to prop up the money market funds.

Hope this helps.

Little Fish



Just a note that it was a GE short-term bond fund, per Bloomberg.

Edited

Beach Lover
#10
Capricious:

Duly noted. Just read the full article about GE.

Little Fish
Capricious avatar
Beach Fanatic
#11
Yeh, Reuters had it wrong apparently.

Darn liberal media again.

Regardless, there are still "stressed" money market funds
out there. We will hear about more.

Been watching for news on stable value funds, the usual
"safe harbor" option in 401K's.
SHELLY avatar
SoWal InsiderAuthor
#12
94 cents on the dollar is a slot machine return.

Yeah, but you get free drinks! :D (Unlike some Open Houses & Auctions)




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Edited

SHELLY avatar
SoWal InsiderAuthor
#13
That's what I thought, but figured better safe than sorry!

Just make sure you keep your accounts under $100,000 individual and $100,000 (total) in joint.

When NetBank went under, there were a bunch of not-so-smart folks who ended up flushing their excess cash down the crapper.


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Capricious avatar
Beach Fanatic
#14
Have we been here before?

(we will be going there again. and again...)

http://tinyurl.com/yof24n


"Nov. 20 (Bloomberg) -- Federated Investors Inc., the third- largest manager of money-market accounts in the U.S., bailed out its Enhanced Reserve cash fund as declines in mortgage-backed securities caused the credit markets to seize up...."

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