money market fund

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It
by Anat Admati and Martin Hellwig
Published 15 Feb 2013

They can do this by not renewing the short-term loans they gave to the bank. At the same time, the money market funds’ own investors may become concerned about the money market funds themselves and rush to take their money out. Therefore, runs can occur in two ways—the money market funds can run to withdraw their funds from the banks, and the money market funds’ investors can run to withdraw their money from the funds. A double run of this sort actually happened in the fall of 2008. Money market fund investors suddenly wanted to move their money into safer assets, such as government bonds or even just cash. This forced the money market funds to withdraw their funding from banks.

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Within days, Reserve Primary lost some $60 billion of its $62 billion in funds, and it was closed shortly afterward.9 At the time, investors in other money market funds, even those not directly affected by the Lehman bankruptcy, treated the fates of Lehman Brothers and Reserve Primary as a signal that other investment banks and money market funds might also be at risk. To protect themselves, many investors abruptly withdrew their money. The run on money market funds was stopped only when a few days later the U.S. Treasury offered them a scheme for government-guaranteed deposit insurance.10 The run forced money market funds to reduce their investments. Many of these investments were short-term loans that the money market funds had made to banks, sometimes just for a day or a few days.

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Whereas in 1997, for example, the European banks that had lent to financial institutions in Asian countries had enough equity to absorb the losses from the Asian banking crises without too many difficulties, in 2007–2009 losses from subprime-mortgage-related securities quickly threatened the solvency of institutions that held the securities.27 Third, much of the borrowing by banks was in the form of short-term debt from other financial institutions, particularly from money market funds. This source of bank funding is especially susceptible to contagion and runs because neither the money market funds nor their investors are officially covered by deposit insurance. The crises of the investment banks Bear Stearns and Lehman Brothers in 2008 were precipitated by the refusal of short-term lenders such as money market funds to roll over and renew their loans when they were worried about the banks’ solvency. After the Lehman bankruptcy, investors moved out of money market funds, and the funds, in turn, were forced to withdraw from funding banks.28 Increased Interconnectedness Contagion has become more serious since the 1990s because financial institutions have become more interconnected and more fragile than they were in the past.

The Permanent Portfolio
by Craig Rowland and J. M. Lawson
Published 27 Aug 2012

See Fund manager risks Margin loans Market panics: stable portfolios avoiding stock market crashes causing Market predictions, unreliability of Market timing: challenges of, impacting financial safety Permanent Portfolio avoidance of Market volatility: bond cash gold stability vs. stock using, to avoid volatility Merrill Lynch MF Global Middle East, economy and investments in Money market funds: cash investments in Fidelity Select Money Market fund Fidelity Treasury Money Market Fidelity US Treasury Money Market Gabelli U.S. Treasury Money Market implementation of investments using Vanguard Admiral Treasury Money Market Fund Vanguard Prime Money Market Fund Vanguard Tax-Free Municipal Money Market Fund Vanguard Treasury Money Market Morningstar Mortgage bonds Municipal bonds Mutual funds: Fidelity Spartan 500 Index Mutual Fund Fidelity Spartan International Index Mutual Fund Fidelity Spartan Treasury Long-Term Bond Fund implementation of investments using iShares Short Treasury Bond Fund Schwab S&P 500 Index Mutual Fund trading costs associated with Vanguard FTSE ex-U.S.

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Table 8.9 Fidelity Select versus T-Bills versus Industry Benchmark Money Market Fund. Asset Growth of $10K from 1985 to 2012 Fidelity Select $29,539 T-Bills $29,431 Industry Benchmark Money Market $27,475 An investor taking more risk in an average money market fund only received lower performance out of the arrangement and no extra profits. But it's even worse for the industry average money market funds. Because most funds charge higher expense ratios than a typical T-Bill fund, the returns are actually lower. The T-Bills beat out the standard money market fund by $1,956 over this time period for an advantage of $72 a year for the lower risk and very safe T-Bills.

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Notice that the Vanguard Treasury Money Market made 2.91 percent a year on a before-tax basis. This return is just slightly less than the Prime Money Market fund's 3.07 percent return over the same period. The tax-free Municipal Money Market fund's 2.15 percent before-tax return was significantly lower than the other two funds. This is the difference the markets arbitrage away versus taxable assets. When you get to the after-tax returns, you find that the taxable Treasury Money Market Fund had a 1.80 percent after tax return versus the Prime Money Market's 1.90 percent. Surprisingly, the tax-free Municipal Money Market fund's returns on an after-tax basis are still lower than the two other funds' after-tax returns.

Money: The True Story of a Made-Up Thing
by Jacob Goldstein
Published 14 Aug 2020

By the end of 1973, they were managing $100 million. Within a few years, a bunch of competing funds had sprung up. This new kind of fund came to be called a money-market fund. Pretty soon, you could write checks against your money-market fund—which is to say, you could use your money-market money to buy stuff. Just like money in the bank! The Big Banks Get In on It Corporations with extra cash on hand started parking hundreds of millions of dollars in money-market funds. By 1982, ten years after Bent and Brown came up with the idea in their tiny office, money funds had more than $200 billion, with billions more flowing in every year.

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And the depositors in the shadow banks—the corporate treasurers and money-market funds and pension funds that had trillions of dollars of cash—were starting to demand their money back. It was the start of the biggest bank run in history. The run hit Bear Stearns first. Bear was a small, risk-loving investment bank that borrowed tons of money from money-market funds and used it to buy mortgage-backed bonds. In March 2008, the funds decided the risk of lending to Bear was no longer worth it. Fidelity, the biggest money-market fund manager in America, had been lending Bear nearly $10 billion. In a single week, they demanded every penny of it back.

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Some funds started buying something called “commercial paper,” which was basically a way to make short-term loans to safe, stable companies. In the 1980s, money-market funds became the biggest buyers of commercial paper. Vast flows of money were now shifting from banks to money funds. So Citibank, one of the biggest banks in the country, figured out how to do the thing banks do: get in the middle of a vast flow of money. With a bunch of complicated legal and financial maneuvering, Citi invented something called “asset-backed commercial paper.” It was a new way for money-market funds to lend money to companies that weren’t safe enough to issue commercial paper. Soon other banks jumped in.

Firefighting
by Ben S. Bernanke , Timothy F. Geithner and Henry M. Paulson, Jr.
Published 16 Apr 2019

Asset-backed securities issuance (eligible classes) and amount pledged to TALF Sources: Federal Reserve Bank of New York based on data from JP Morgan, Bloomberg Finance L.P., and the Federal Reserve Board of Governors U.S. STRATEGY The U.S. government put in place a mix of guarantees to backstop critical parts of the financial system. U.S. STRATEGY Treasury agreed to guarantee about $3.2 trillion of money market fund assets to stop the run on prime money market funds. Daily U.S. money market fund flows Sources: iMoneyNet; authors’ calculations based on Schmidt et al. (2016) U.S. STRATEGY The FDIC expanded its deposit insurance coverage limits on consumer and business accounts in an effort to prevent bank runs. Share of total deposits FDIC insured Source: U.S.

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Ben got an email from the baseball statistics guru Bill James urging him to hang in there: “At some point the people who are saying it can’t get any worse HAVE to be right.” It was still getting worse, and a new disaster erupted on Tuesday while we were finalizing the terms of our support for AIG. The Reserve Primary Fund, a money market fund that had invested heavily in Lehman’s commercial paper, announced it could no longer pay its investors 100 cents on the dollar and was halting redemptions. Investors afraid that other money market funds would also “break the buck” and freeze their cash scrambled to pull $230 billion out of the industry that week, a scary run on quasi-banks that had operated without insurance for their quasi-deposits.

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PRE-CRISIS LIMITATIONS Limited reach of prudential limits on leverage Limited deposit insurance coverage No resolution authority for largest bank holding companies and nonbanks No ability to inject capital into financial firms No authority to stabilize GSEs ESSENTIAL CRISIS AUTHORITIES Fed expanded lender of last resort Broader FDIC debt and money market fund guarantees GSE conservatorship Capital injections into financial firms POST-CRISIS TOOLS Stronger capital requirements Stronger liquidity and funding requirements Living wills, bankruptcy, and resolution authority POST-CRISIS LIMITATIONS Limitations on Fed lender of last resort No money market fund guarantees or FDIC debt guarantees without congressional action No authority to inject capital OUTCOMES This was a terribly damaging crisis.

Stress Test: Reflections on Financial Crises
by Timothy F. Geithner
Published 11 May 2014

The “TED spread,” a measuring stick for fear in the banking system, was about to surpass the record set after the 1987 stock market crash. Tuesday’s most chilling development outside AIG was a money market fund “breaking the buck,” which meant it could no longer promise investors 100 cents on the dollar. Money market funds were widely viewed as virtually indistinguishable from insured bank deposits, as similarly safe vehicles for storing cash with slightly better interest rates. But many money market funds had invested in commercial paper and other instruments that turned out to be riskier than they had thought. One fund, the Reserve Primary Fund, had even added to its stash of Lehman paper over the summer while everyone else was unloading it, which sparked a run on the fund after Lehman fell.

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Five: The Fall 1 “TED spread”: The three-month Treasury-Eurodollar, or TED, spread measures the difference in borrowing costs on three-month Treasury bills and the cost that banks pay to borrow from each other for three months, as reflected in the London Interbank Offered Rate (LIBOR). 2 prime money market funds: There are three primary types of money market funds: Treasury and government funds that buy Treasury and agency securities; tax-exempt funds, which invest in short-term municipal securities; and prime funds, which typically pay higher rates of interest by investing in a broader range of riskier securities, including unsecured commercial paper and asset-backed commercial paper. Institutional investors use money market funds for cash-management purposes and are often more likely to move their money at the first sign of stress than individuals or retail investors.

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BoNY’s role in tri-party repo was mostly operational—shifting cash and securities back and forth between borrowers and lenders, pricing collateral—but it also provided borrowers with several hours of daytime (or “intraday”) credit while arranging their transactions. Now it was about to tell the world it couldn’t take the risk of Countrywide failing during those hours. Instead of returning the cash that money market funds and other investors had lent to Countrywide overnight, BoNY was threatening to give those lenders the securities that Countrywide had put up as collateral. Countrywide would get tarred with a potentially fatal vote of no confidence. And the money market funds and other investors that had lent the firm short-term cash would get stuck with securities they didn’t want, including some mortgage securities that were already plunging in value.

When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A)
by Scott McCleskey
Published 10 Mar 2011

This can also cause a run on the assets being sold by the failing fund into the market, and this in turn could cause the panic to spread to other funds holding the assets being dumped into the market at ever lower prices. In this scenario, money market funds become the conduit though which the crisis spreads far beyond those firms directly exposed to the failing bank’s obligations. The analogy is no longer falling dominoes but a live wire that spreads the shock to all who touch it. In the end, there was no run on the bank in money market funds, partly because the Treasury announced three days later that it would offer to insure money market funds to keep them from falling below $1. Whether this intervention was appropriate will be the subject of debate for some time, but whatever prevented the panic from spreading was crucial to bringing the financial system back from the edge and avoiding a catastrophe of far greater proportions than the severe one we did endure.

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The people at the other firms making the decision C01 06/16/2010 11:13:51 Page 7 How Systemic Risk Works & 7 as to whether they should continue doing business with the failing firm owe no duty to the failing firm and not even an explicit duty to ‘‘the system.’’ Their duty is to their own firm and so it is easy to see why the reluctance to deal would grow. Money Market Funds: From Safe Harbor to Live Wire Beyond repo agreements, financial institutions need a stable place to keep their cash that is not invested in the market. They don’t open a checking account at the local bank, however. In order to achieve a slightly higher interest rate than they could with a normal bank account, they keep their funds in what is called a money market fund (as do other big institutions). The attraction of these funds is that they have virtually the same liquidity as a bank account (meaning immediate access to your money) while paying a higher interest rate.

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The attraction of these funds is that they have virtually the same liquidity as a bank account (meaning immediate access to your money) while paying a higher interest rate. Money market funds have become the principal means by which large institutions hold their ready cash, and its importance is reflected in the fact that some $3.5 trillion moves through this market every business day. Some of these funds are available to retail investors and some only to institutions, but they share essentially the same characteristics: safety of principal, high liquidity, and higher interest rates. Retail money market funds should not be confused with money market accounts at banks, which are simply a way of paying interest on what would otherwise be a checking account (by law, actual checking accounts are not permitted to pay interest).

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
by Henry M. Paulson
Published 15 Sep 2010

Lehman’s failure and AIG’s escalating difficulties had begun to roil money market funds. Typically, these funds invested in government or quasi-government securities, but to produce higher yields for investors they had also become big buyers of commercial paper. All morning we heard reports that nervous investors were pulling their money out and accelerating the stampede into the Treasury market. The Reserve Primary Fund, the nation’s first money market fund, had been particularly hard-hit because of substantial holdings of now-worthless Lehman paper. Many Americans had grown accustomed to thinking that money market funds were as safe as their bank accounts.

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China’s sudden flexibility not only benefited that country but would help forestall protectionist sentiment in the U.S. Congress. On the financial side, however, the bad news piled up day by day. In mid-November, Bank of America and Legg Mason said they would spend hundreds of millions of dollars to prop up their faltering money market funds, which had gotten burned buying debt from SIVs. Although the public considered money market funds among the safest investments, some funds had loaded up on asset-backed commercial paper in hopes of raising returns. Meantime, the credit markets relentlessly tightened as banks grew increasingly reluctant to lend to one another. One key measure of the confidence banks had in one another, the LIBOR-OIS spread—which measures the rate they charge each other for funds—had begun to widen dramatically.

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While we were with the president, the Reserve had announced that it would halt payment of redemptions for one week on its Primary Fund, a $63 billion money market fund that was caught with $785 million in Lehman short-term debt when the investment bank entered bankruptcy. On Monday, investors had flooded the company with requests for redemptions; by mid-afternoon Tuesday, $40 billion had been pulled. The fund had officially broken the buck, the first to do so since 1994, when the Denver-based U.S. Government Money Market Fund, which had invested heavily in adjustable-rate derivatives, fell to 96 cents. The sense of panic was becoming more widespread.

Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies
by Nik Bhatia
Published 18 Jan 2021

If the bank is healthy, this shouldn’t be a problem, but are you willing to put all your eggs in one basket and trust one single bank with a billion dollars? There is an option, however, that combines Treasuries, bank deposits, and other monetary instruments into shares of a Money Market Fund (MMF shares): a tidy cash instrument that services the world’s unrelenting demand for safe money in a world of risky investments. Your best option to store your lottery winnings is by investing it in a Money Market Fund. Money Market Funds became popular during the 1970s alongside the boom in Treasury Repo supply. MMF shares were a phenomenally desired investment product: a method to diversify away from concentrated bank risk exposure while simultaneously holding a cash-like monetary instrument.

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Interest rates for T-Bills, Fed Funds, LIBOR, and GC all mirrored each other, implying the financial system viewed these four money-types as more or less identical. The four reference rates all harmoniously trudged along in congress until August 9th, 2007, when harmony turned to discord. Before we recount that fateful day, we must start with an overview of Money Market Funds. Money Market Funds Most people are instinctually risk-averse. They tend to avoid conflict, or in monetary terms, they crave higher-order monies that won’t default. In small amounts, FDIC insured third-layer bank deposits suffice. In large amounts, it gets more complicated. Let’s bring back the example of the VOC, its shares, and the creation of the Bank of Amsterdam to illustrate the state of money today, relative to investment.

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Cash now refers to a higher order of money relative to stocks and bonds, not exclusively to paper currency. In reality, no large investor can actually use paper currency with any utility: that type of cash is useless when dealing in large amounts of money. Cash today means monetary instruments that are safe relative to basically all other investments that have risk. That brings us to Money Market Funds. Let’s say you win a billion-dollar lottery. Unfortunately for you, your government exerts a 99.99% lottery tax on all winnings, leaving you with a tax bill of over $999 million dollars. The tax collector won’t accept your money for a month. How do you keep the money in cash? The safest way is to purchase a T-Bill that matures on your tax due date.

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
by Richard A. Posner
Published 30 Apr 2009

It was the number-one dealer in commercial paper, a form of debt that seemed safe because of who the issuers were (large, blue-ribbon corporations) and because it was short term. The major customers for commercial paper were money market funds, which pay low interest rates because they are (or rather were) considered utterly safe. Lehman was the middleman between the issuers of commercial paper and the money market funds, and when it unexpectedly collapsed, the commercial-paper market—a significant part of the overall credit market—froze. Lehman's collapse showed that commercial paper wasn't so safe after all, so money markets stopped buying it and as a result issuers of commercial paper stopped issuing it.

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But we know that this model of banking would not be viable if other financial intermediaries were permitted, as they are today, to offer close substitutes for bank products. Does this mean, however, that money market funds, hedge funds, and all the other nonbank banks must be placed under the same regulatory controls as commercial banks? Should they for example be required to have reserves? To pay zero interest to the lenders of their capital? If the answer to these questions is yes, that is the end of hedge funds, of money market funds, etc. If the answer is no, it is unclear how much reregulation of commercial banks is possible. If there is another answer, it will take much thought to work out.

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The economists and eventually the politicians who pressed for deregulation were not sensitive to the fact that deregulating banking has a macroeconomic significance that deregulating railroads or trucking or airlines or telecommunications or oil pipelines does not. The deregulation of banking proceeded along two paths. Financial intermediaries that were not banks, such as investment banks, money market funds, and hedge funds, were increasingly permitted to offer close substitutes for conventional bank services. An example is a checkable interest-bearing account in a money market fund —a close substitute for a checking account in a bank, not quite as safe but quite safe and paying interest, which checkable bank accounts in a bank did not. The second path was relaxing the regulatory restrictions on banks to enable them to compete with the nonbank financial intermediaries that were crowding them.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

Federal Reserve and Treasury officials had spent the weekend trying to imagine and prepare for every collateral effect of a Lehman bankruptcy. One thing they apparently did not consider was that a money market fund might break the buck. That announcement arguably sowed as much panic as Lehman’s bankruptcy itself. Within a week, investors yanked a total of $349 billion from almost every money market fund not invested solely in Treasury bills, regardless of whether it had exposure to Lehman. Some thirty-six of the one hundred largest U.S. prime money market funds were eventually supported. Meanwhile, the funds themselves stopped buying commercial paper, the short-term IOUs that everyone from General Electric to obscure investment funds had come to rely on to fund everything from equipment inventory to subprime mortgage-backed securities.

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It later emerged that, between 1972 and the lead-up to the crisis, there had been 146 instances of a fund sponsor intervening to preserve the dollar per share value of a money market fund. As I mentioned earlier, only once had a fund actually broken the buck and been forced to liquidate. The sponsors in these cases were doing the right thing for themselves and their investors, but in the grand scheme of things, these backstage interventions worsened the eventual crisis, because they reinforced the illusion that investors would never lose money in money market funds. Over the course of the next five years, other institutions would suffer the same fate as money market funds: the illusion of safety would be abruptly torn away from European government debt during the euro crisis, as we will see in Chapter 5, and the same thing very nearly happened to U.S.

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If Lehman wasn’t too big to fail, nobody was: not Goldman Sachs, Morgan Stanley, Citigroup, or any other institution. The second assumption that had been allowed to take root was that money market funds were basically the same as bank deposits. That, more or less, was how their shareholders treated them. Rate of return was much less important than safety and immediate access to funds. “We could get our cash any day that we would need it,” explained one investor in Reserve. “And it gave us safety because the money market fund was a dollar in, you get your dollar out.” Of course, these investments weren’t bank deposits. Funds were not legally obligated to maintain the dollar per share value.

In FED We Trust: Ben Bernanke's War on the Great Panic
by David Wessel
Published 3 Aug 2009

But suddenly the economy was as vulnerable to a run on money market funds as it was to runs on banks. And it wasn’t only ordinary savers who stood to get trampled. Scores of brand-name industrial companies — General Electric, Caterpillar, Dow Chemical — relied on the money market funds for their short-term borrowing, often issuing the funds IOUs called commercial paper that were backed only by the companies’ promise to pay. The Fed and the Treasury decided that to avoid a stampede out of money market funds, they had to find a way to assure consumers that the Reserve Primary Fund wouldn’t be followed by scores of other money market funds breaking the buck.

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BREAKING THE BUCK The turmoil in the financial markets during the week of September 15 didn’t revolve only around newfangled financial instruments, cross-border sophisticated bets, or the collapse of major financial institutions. In fact, the biggest surprise of Lehman’s collapse came from money market funds, the $1-a-share mutual funds that Americans had come to consider as safe as bank accounts. Money market funds had been on the Fed list of things to worry about for months, dating back to the fragility of the tri-party repo market and the Bear Stearns episode. But with so much advance speculation about Lehman’s frailties, it didn’t occur to Bernanke, Geithner, or Paulson — or any of their staff — that a major money market fund would hold a significant chunk of Lehman’s short-term debt. But the Reserve Primary Fund, the oldest of all the money market mutual funds, had 1.2 percent of its $63 billion in Lehman — holdings that would prove devastating and which couldn’t wait for Congress to act.

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After AIG imploded, he dropped the job hunt and returned to work. In the frantic search for a solution, talk bubbled up about the Fed lending directly to the money market funds. It turned out SEC rules forbid the funds from borrowing. There was talk about asking the Federal Deposit Insurance Corporation to insure the money market fund deposits; that went nowhere. There was talk about allowing industrial companies to come directly to the Fed for loans, an idea that resurfaced a few weeks later. The money market fund industry itself was split on the question of government aid. The biggest funds thought they could protect themselves and the $1-a-share value and didn’t want to pay for government insurance or invite politicians into their business.

Personal Investing: The Missing Manual
by Bonnie Biafore , Amy E. Buttell and Carol Fabbri
Published 24 May 2010

Funds that invest in municipal bonds come with tax advantages (page 130). • Money market funds invest either in very short-term bonds or in a collection of investments that simulate the returns of short-term fixedincome investments. If you’re looking for a place to stash your savings, a money market fund makes sense because they’re reasonably safe, but pay more interest than bank accounts. Money market funds are safe, but they aren’t bulletproof. In 2008, the nation’s oldest mutual money market fund broke the buck—its net asset value fell below $1 a share. The federal government guaranteed the value of all money market funds to prevent a panic, but that guarantee ended early in 2010.

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. • Packaged funds offer a basket of mutual funds to suit different levels of risk tolerance: aggressive, moderate, and conservative. Aggressive packages contain mostly stock funds with some bond or money market funds. The allocation is usually 100% stock or 90% stock/10% bonds. Moderate packages are approximately 60% stock/30% bonds/10% money market funds. Conservative packages give the lead to bond funds with small amounts of stock and money market funds, usually 60% bonds/40% stock. The packaged fund option you choose remains in place unless you change it. • With single funds, you choose several funds from a menu of individual mutual funds with different investment objectives.

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The federal government guaranteed the value of all money market funds to prevent a panic, but that guarantee ended early in 2010. Today, federal deposit insurance protects only money market deposit accounts (not money market funds) in banks, savings and loans, and credit unions. There are ETF money market funds, but because their value fluctuates, they won’t trade at a steady $1 per share. • Blend funds invest in a mix of stocks and bonds. They’re great when you want to buy one fund to play multiple roles in your financial plan. • Real estate funds invest in REITs. (See Chapter 8 for the skinny on REITs.) • Commodity funds invest in futures contracts on commodities like wheat, gold, or oil.

925 Ideas to Help You Save Money, Get Out of Debt and Retire a Millionaire So You Can Leave Your Mark on the World
by Devin D. Thorpe
Published 25 Nov 2012

Thoughtful adjustments to your asset allocation will better prepare you for retirement. What Is A Money Market Fund And How Do I Use One? Learning about money market funds and how to use them in your investing programs can help you make better investment decisions, both protecting your assets and allowing you to earn more in the long run. A money market mutual fund (bit.ly/Z1uvGU) is a mutual fund that invests in assets that are so stable that the fund maintains a constant price of $1 per share. Money market funds are not FDIC insured (though some banks have offered savings accounts or even checking accounts with the name “money market” but they are FDIC insured and are not mutual funds).

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These are opportunities to invest in a money market mutual fund so that your cash is safe, but not completely idle. Some brokerages will put your cash into a money market fund automatically, even if you don’t ask for that. Others will give you the option to automatically sweep your cash into a money market fund. Some only make that option available for people with large accounts. Even if you can’t sweep all of your balances into a money market account, you can move money into a money market fund just like you move money into a mutual fund that invests in stocks or bonds. Because of the low returns on money market mutual funds, you want to be sure to avoid any transaction fees at all (unless you have lots and lots of money invested).

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Because of the low returns on money market mutual funds, you want to be sure to avoid any transaction fees at all (unless you have lots and lots of money invested). Today, a $1,000 investment in a money market fund might only earn $10 in a year. If you have to pay $10 to get in and $10 to get out of a money market fund, you’ll lose ten dollars. You’d be better off to have your cash sit idle for a year earning nothing. Money market mutual funds are a key part of your investment strategy. Though you are unlikely to keep much money in money market funds, you’ll almost always want some of your money there. What Is A REIT And Why Would I Want One? A REIT is a Real Estate Investment Trust.

Crisis Economics: A Crash Course in the Future of Finance
by Nouriel Roubini and Stephen Mihm
Published 10 May 2010

When this fact came out, suspicion fell on the entire $4 trillion money market industry, which became one big terra incognita, and the kind of dangerous uncertainty that Frank Knight had first described swept the field. In no time the federal government was forced to provide a blanket guarantee—the equivalent of deposit insurance—to all existing money market funds. The panic in the money market funds quickly spilled over into other arenas, beginning with the market for commercial paper, the debt that ordinary corporations used as their main source of working capital. Money market funds had been primary purchasers of this kind of debt, and when their fortunes turned, the commercial paper market seized up too. Perfectly solvent corporations found themselves shut out of the market as borrowing rates went through the roof.

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The run on the shadow banking system continued with a run on the $4 trillion money-market-fund industry. Thanks to exposure to Lehman Brothers, one of these supposedly safe funds, the Reserve Primary Fund, “broke the buck,” meaning that a dollar invested with it was no longer worth a dollar. This was a fateful step: investors panicked and began to stage a run on the trillions of dollars of assets in these funds. To avoid a financial meltdown, the government was forced to provide a blanket guarantee—the equivalent of deposit insurance—to all existing money market funds. The panic did not end there. The demise of the shadow banking system continued with the collapse of the market for still more exotic instruments (ARSs, TOBs, VRDOs, and a whole alphabet soup’s worth of securities) used by state and local governments to finance their spending.

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This chapter challenges that absurd perspective, showing how decades-old trends and policies created a global financial system that was subprime from top to bottom. Beyond the creation of ever more esoteric and opaque financial instruments, these long-standing trends included the rise of the “shadow banking system,” a sprawling collection of nonbank mortgage lenders, hedge funds, broker dealers, money market funds, and other institutions that looked like banks, acted like banks, borrowed and lent like banks, and otherwise became banks—but were never regulated like banks. This same chapter introduces the problem of moral hazard, in which market participants take undue risks on the assumption that they will be bailed out, indemnified, and otherwise spared the consequences of their reckless behavior.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

Savvy investors can take advantage of the lag between yield changes on open market paper and yields on money market funds, particularly when interest rates fall. Many investors apparently recognize the opportunities that arise on such occasions, as there have been sharp swings in the amount of money held in money market funds, particularly institutional money market funds, when the Federal Reserve’s interest rate policies have spurred movement in short-term interest rates. In early 2001, for example, when the Fed began to aggressively lower interest rates, inflows into money market funds increased sharply. Investors recognized that yields on money market funds would remain high relative to yields that could be obtained on market instruments such as T-bills and commercial paper, and henceforth shifted money to these instruments.

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Whether an institutional investor does or does not use a money fund, the yield it could achieve using one makes a good benchmark against which to compare the yield it achieves over time on its liquidity portfolio, provided, that is, that it adjusts that yield for the full investment expenses it incurs. Capturing Rising Rates with Money Market Funds It is a simple fact that when interest rates rise bond prices fall. When such seems likely and when there’s much uncertainty about whether interest rates will continue to rise, money market funds can be an attractive instrument if used strategically to simultaneously capture the rate rise and avoid capital losses on longer-dated maturities. With money market funds, there’s not much risk to principal, as the principal invested in money market funds is almost always constant at $1 per share. This is unlike owning longer-dated maturities where investors would encounter a capital loss.

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There were over $200 billion of VRDOs outstanding in 2003. Money Funds Are Holding Larger Share of Municipal Securities Money market funds held 15.7% of all municipal securities outstanding at the end of 2004, up from 8.5% 10 years earlier, this according to The Bond Market Association. Twenty-five years ago, money funds held only 0.5% of all municipal securities outstanding. The growth in such holdings partly reflects the growth in popularity of municipal money market funds, which are used by investors as an alternative to general-purpose money market funds. For some investors, municipal money funds offer attractive after-tax returns rates compared to other money funds.

All About Asset Allocation, Second Edition
by Richard Ferri
Published 11 Jul 2010

FIGURE 1-1 The Investment Pyramid Discretionary speculative (commodities, individual stocks) 5 Nondiscretionary assets (restricted stock, pension, Social Security) 4 Discretionary long-term illiquid assets (home, properties, businesses, collectibles) 3 Discretionary long-term liquid investments (mutual funds, ETFs, CDs, bonds, annuities) 2 1 Cash accounts for living expenses and emergencies (checking account, savings account, money market fund) CHAPTER 1 10 Here are brief descriptions of the five levels: 1. Level one is the base of the pyramid. It is characterized by highly liquid cash and cash types of investments that are used for living expenses and emergencies. This money is typically in checking accounts, savings accounts, and money market funds. This cash is not part of your long-term investment allocation, and you should not be overly concerned that your rate of return is low.

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The interest is the difference between the purchase price of the bill and its face value paid at maturity. The U.S. Treasury issues T-bills weekly, and the interest rate is set by an auction system. The current T-bill rate is a good proxy for the interest an investor will earn in a money market fund because T-bills are frequently purchased in money market funds. Understanding Investment Risk 27 T-bills are often called a “risk-free” investment in the financial world because of their short maturity and government guaranteed return. However, risk-free may be an inappropriate choice of words. T-bills do have a reliable positive return; however, that return is subject to the corrosive effects of taxes and inflation.

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It depends on each person’s unique situation. Asset allocation is personal. There is an appropriate allocation for your needs at every stage in life. Your mission is to find it. HOW ASSET ALLOCATION WORKS Asset classes are broad categories of investments, such as stocks, bonds, real estate, commodities, and money market funds. Each asset class can be further divided into categories. For example, Planning for Investment Success 19 stocks can be categorized into U.S. stocks and foreign stocks. Bonds can be categorized into taxable bonds and tax-free bonds. Real estate investments can be divided into owner-occupied residential real estate, rental residential real estate, and commercial properties.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

They are sold at a minimum $1,000 face value and in $1,000 increments above that. T-bills offer an advantage over money-market funds and bank CDs in that their income is exempt from state and local taxes. In addition, T-bill yields are often higher than those of money-market funds. For information on purchasing T-bills directly, go to www.treasurydirect.gov. Tax-Exempt Money-Market Funds If you find yourself lucky enough to be in the highest federal tax bracket, you will find tax-exempt money-market funds to be the best vehicle for your reserve funds. These funds invest in a portfolio of short-term issues of state and local government entities and generate income that is exempt from both federal and state taxes if the fund confines its investments to securities issued by entities within the state.

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Internet Banks Investors can also take advantage of online financial institutions that reduce their expenses by having neither branches nor tellers and by conducting all their business electronically. Thanks to their low overhead, they can offer rates significantly above both typical savings accounts and money-market funds. And, unlike money-market funds, those Internet banks that are members of the Federal Deposit Insurance Corporation can guarantee the safety of your funds. To find an Internet bank, go to the Google search engine and type in “Internet bank.” You will also see many of them popping up when you do a rate search on www.bankrate.com for the banks with the highest yields.

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Those willing to accept somewhat more risk in the hope of greater reward could increase the proportion of equities. Those who need a steady income for living expenses could increase their holdings of real estate equities and dividend growth stocks, because they provide somewhat larger current income. A SPECIFIC INDEX-FUND PORTFOLIO FOR AGING BABY BOOMERS Cash (5%)* Fidelity Money Market Fund (FXLXX) or Vanguard Prime Money Market Fund (VMMXX) Bonds and Bond Substitutes (27½%)† 7½% U.S. Vanguard IntermediateTerm Bond (VICSX) or iShares Corporate Bond ETF (LQD) 7½% Vanguard Emerging Market Government Bond Fund (VGAVX) 12½% Wisdom Tree Dividend Growth Fund (DGRW) or Vanguard Dividend Growth Fund (VDIGX)† Real Estate Equities (12½%) Vanguard REIT Index Fund (VGSIX) or Fidelity Spartan REIT Index Fund (FRXIX) Stocks (55%) 27% U.S.

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again
by Nicholas Dunbar
Published 11 Jul 2011

Although Deutsche denies Linares’s involvement, the lure of the financial iPhone caught the attention of Justo Palma, a fund manager for a mutual fund company called BZ Gestion in the city of Saragossa, northeast of Madrid, in 2001.9 Palma invited several banks to propose a structured product for one of BZ Gestion’s money market funds, and Deutsche Bank won the tender, selling a REPON-style product containing a single slice of a synthetic CDO. Unfortunately, a money market fund is not the same as an insurance company, which holds its assets at book value. Palma’s purchase was marked to market once a month, and as the provider of the product, Deutsche was obliged to provide its valuation. This quickly exposed a significant difference between the price Palma had paid and what the CDO was worth, even without any defaults in the portfolio.

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Like Smith, these money market funds bought commercial paper because the extra returns gave them an edge over traditional bank deposits. Over time, the money funds started investing in short-term repo agreements as well, helping to prop up the growing balance sheets of investment banks like Goldman Sachs and Lehman Brothers. Looking at this upstart market, the traditional lending banks could argue that if their depositors took those green spectacles off, Uncle Sam would be there to protect them in the form of the FDIC’s guarantee, which stood at $100,000 per customer in 2007. Money market funds responded that they didn’t need this protection because they weren’t “borrowing short and lending long,” as banks did—IOUs and repos were only short-term investments, not long-term loans.

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This was an astounding claim, in part because the contractual small print on mutual funds made it clear that the redemption value of funds depended on the price that its assets could be sold for in the market: there was no guarantee your cash would be returned. Yet mutual funds succeeded in fostering a perception that investors were guaranteed to not lose money. Taking full advantage of such (misplaced) customer confidence, money market funds grew to over $2 trillion by 2007.3 Banking in the Shadows In the late 1980s, this alternative U.S. deposit-taking system—growing steadily and inexorably—came to the attention of a mismatched pair of bright young bankers at Citigroup. Nick Sossidis is a Greek-born bear of a man with a blunt and forceful manner.

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
by Gillian Tett
Published 11 May 2009

The SIVs were also entwined with America’s vast $3 trillion money-market fund sector. Most ordinary Americans assumed that money-market funds were as safe as bank deposits. The funds marketed themselves on the mantra that no fund had ever “broken the buck,” or returned less than 100 percent of money invested. However, these money-market funds were now holding large quantities of notes issued by SIVs and were not covered by any federal safety insurance. That created the potential for a chain reaction; if SIVs collapsed, the worry went, money-market funds would suffer losses and consumers would then suddenly discover that their supersafe investments were not so safe after all.

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Pension funds sometimes bought commercial paper, too. One of the biggest sources of demand for commercial paper, though, came from the giant $3 trillion money-market fund sector. These funds typically raised money from ordinary retail investors or companies, which tended to treat money-market funds as similar to a bank account: they placed cash there assuming they could always withdraw it, and on short notice. Precisely because money-market funds knew that investors might redeem their cash with little notice, such funds usually wanted to purchase only assets that had a short duration and were safe.

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That left the British funds unable to complete numerous trades, triggering panic. Another unexpected shock hit the $3 trillion American money-market fund sector. In the months before the Lehman collapse, many of these funds had purchased debt issued by Lehman Brothers, assuming that the US government would never let Lehman collapse. Now those funds were nursing substantial losses. On September 16, the $62 billion Reserve Primary Fund, the country’s oldest money-market fund, posted a somber statement on its website: “The value of the debt securities issued by Lehman Brothers Holdings (face value $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00 p.m.

Why Wall Street Matters
by William D. Cohan
Published 27 Feb 2017

The rapid move upward in LIBOR came in reaction to new SEC regulations that went into effect in October 2016 in the money-market fund industry, as well as to other changes in how banks are regulated that were expected to take effect in December 2016 and January 2017. Banks are starting to charge each other much more for short-term loans, which is an ominous sign, and stands in stark contrast to the new highs being achieved in the stock market and the rally in Treasury securities (before it sold off dramatically in the wake of Trump’s unexpected victory). The SEC’s new rules for money-market funds require that they represent to investors that the funds are “money good,” or worth what they say they are worth.

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The problem being addressed by the SEC, at the instigation of the Federal Reserve, occurred in September 2008 when the Reserve Fund, a money-market fund—which is supposed to be as safe as a savings account—“broke the buck,” meaning that $1 invested in the fund, which was supposed to always be worth $1, was no longer worth $1. It was a traumatic moment of the crisis. People lost money on what was supposed to be a safe investment. They were upset, of course. But more important to the confidence of the financial system was the fact that because of the turmoil in the markets, a money-market fund was no longer considered prudent. The reason the Reserve Fund “broke the buck” is that it didn’t just keep the money investors gave it in cash; it invested the money, in an effort to give investors a slightly higher yield, or financial return on the money invested, than could be found in a savings account.

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The Reserve Fund generated those slightly higher returns by investing in something that seemed to be rated AAA—the AAA tranches of securitizations, the funky and creative securities created by Lew Ranieri—that turned out not to be really AAA after all (as we all know). Understandably, the Federal Reserve doesn’t want that to happen again, hence the new rules about money-market funds that took effect last year. The problem, as usual, is not the honorable goal of trying to prevent a money-market fund from ever again breaking the buck; the problem is the unintended consequences of trying to make sure that doesn’t happen. Once upon a time, Alan Greenspan, another former Federal Reserve Board chairman, spoke about the Fed’s being an organization that set monetary policy with a minor regulatory function attached to it.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis
by James Rickards
Published 15 Nov 2016

Their so-called money was actually a bank liability and could be frozen at any time. The Brisbane G20 ice-nine plan was not limited to bank deposits. That was just a beginning. On Wednesday, July 23, 2014, the U.S. Securities and Exchange Commission (SEC) approved a new rule on a 3–2 vote that allows money market funds to suspend investor redemptions. The SEC rule pushes ice-nine beyond banking into the world of investments. Now money market funds could act like hedge funds and refuse to return investor money. Fund managers dutifully included glossy flyers in the mail and online notices to investors about this change. No doubt investors threw the flyer in the trash and skipped the notice.

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Until big banks meet the capital surcharge requirement, they are prohibited from paying cash to stockholders in the form of dividends and stock buybacks. This prohibition is ice-nine applied to bank stockholders. The ice-nine in Cat’s Cradle threatened every water molecule on earth. The same is true for financial ice-nine. If regulators apply ice-nine to bank deposits, there will be a run on money market funds. If ice-nine is applied to money market funds also, the run will move to bond markets. If any market is left outside the ice-nine net, it will immediately become the object of distress selling when other markets are frozen. In order for the elite ice-nine plan to work, it must be applied to everything. Not even trading contracts can escape ice-nine.

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Behind that bland language is a separate: See “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” Financial Stability Board, November 10, 2014, accessed August 7, 2016, www.fsb.org/2014/11/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks-in-resolution/. The report says bank losses: Ibid., 5 (emphasis added). On Wednesday, July 23, 2014, the U.S. Securities and Exchange Commission: See “SEC Adopts Money Market Fund Reforms,” Harvard Law School Forum on Corporate Governance and Financial Regulation, August 16, 2014, accessed August 7, 2016, https://corpgov.law.harvard.edu/2014/08/16/sec-adopts-money-market-fund-reforms/. On December 8, 2014, The Wall Street Journal: See Kirsten Grind, James Sterngold, and Juliet Chung, “Banks Urge Clients to Take Cash Elsewhere,” The Wall Street Journal, December 7, 2014, accessed August 7, 2016, www.wsj.com/articles/banks-urge-big-customers-to-take-cash-elsewhere-or-be-slapped-with-fees-1418003852.

Big Debt Crises
by Ray Dalio
Published 9 Sep 2018

The Treasury also unveiled a creative new move to shore up troubled money market funds, which held $3.5 trillion. Money market funds had become very popular as an alternative to bank deposits for both retail and institutional investors. Most investors were attracted by their high interest rates and undeterred by their lack of FDIC protection; they didn’t appreciate that they were delivering those higher interest rates by investing in higher-yielding and higher-risk loans. They also believed that they would not lose money in them as their principal was protected. Prime money-market funds had been a crucial source of liquidity for all kinds of businesses, since they buy commercial paper, a type of short-term debt that businesses use to fund their operations.

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So Paulson got his general counsel to give him an opinion that he could use that $45 billion, since if the whole economy went down it wouldn’t be good for the dollar.45 Some of Paulson’s colleagues questioned whether $45 billion would be enough, given that there were $3.5 trillion worth of money-market funds. Paulson didn’t know if it would be, but he didn’t have a better idea. The Treasury team was moving so fast that Sheila Bair (the head of the FDIC) called and complained that not only was she not consulted, but because of the guarantee all of the money would now go from bank deposits to Money-Market Funds. That was a good point. So the Treasury clarified that the guarantee was only applicable to money-market funds that were in trouble as of September 19. The guarantee worked incredibly well and markets immediately turned.

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After the Reserve Fund broke the buck, Ken Wilson, who was at Treasury at the time, had gotten a call at 7 a.m. from Northern Trust, followed by others from Black Rock, State Street, and Bank of New York Mellon. All of them reported runs on their money-market funds. Meanwhile, GE had been in the news, explaining that they couldn’t sell their paper. Then Coca-Cola CFO Muhtar Kent called and said they were going to be unable to make their $800 million quarterly dividend payment at the end of the week because they couldn’t roll their paper. Even AAA-rated industrial- and consumer-products companies couldn’t roll their paper! The situation was very quickly metastasizing from Wall Street to Main Street. To stop the run on money-market funds, Paulson decided to guarantee them outright. The only problem was that the funds would need a substantial backstop and the Treasury couldn’t immediately find the cash.

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

We readily admit that there is substantial evidence that investors show an extreme desire to hold what appear to be super-safe assets. But this is likely driven by the same government subsidies to debt financing we have already mentioned. For example, when the financial crisis peaked in September 2008, the U.S. Treasury stepped in to guarantee money-market funds. Now all investors know that money-market funds enjoy an implicit guarantee from the government. Their “desire” to put cash into a money-market fund is not some primitive preference. They are simply responding to a government subsidy. Also, even if investors do exhibit innate preferences for super-safe assets, the government should directly cater to the demand, not the private sector.

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By the middle of 2013, these Fed purchases had increased the size of its balance sheet from around $800 billion in 2007 to a whopping $3.3 trillion. The financial crisis in the fall of 2008 had an added complication because banks were funding themselves with very short-term financing instruments that weren’t deposits. Much of this short-term financing was being provided by money-market funds, which were not explicitly guaranteed by the Federal Reserve or the FDIC. When investors began running from money-market funds in September 2008, the Treasury Department stepped in to guarantee these funds. Their blanket guarantee immediately calmed the market, which shows that the government can and should prevent runs in the financial sector. We view these policies as advisable and fitting within the appropriate role of the government and central bank in preventing crippling bank runs.

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The richest 20 percent of home owners had a leverage ratio of only 7 percent, compared to the 80 percent leverage ratio of the poorest home owners. Second, their net worth was overwhelmingly concentrated in non-housing assets. While the poor had $4 of home equity for every $1 of other assets, the rich were exactly the opposite, with $1 of home equity for every $4 of other assets, like money-market funds, stocks, and bonds. Figure 2.1 shows these facts graphically. It splits home owners in the United States in 2007 into five quintiles based on net worth, with the poorest households on the left side of the graph and the richest on the right. The figure illustrates the fraction of total assets each of the five quintiles had in debt, home equity, and financial wealth.

One Up on Wall Street
by Peter Lynch
Published 11 May 2012

After that, the money-market fund liberated millions of former passbook savers from the captivity of banks, once and for all. There ought to be a monument to Bruce Bent and Harry Browne, who dreamed up the money-market account and dared to lead the great exodus out of the Scroogian thrifts. They started it with the Reserve Fund in 1971. My own boss, Ned Johnson, took the idea a thought further and added the check-writing feature. Prior to that, the money-market was most useful as a place where small corporations could park their weekly payroll funds. The check-writing feature gave the money-market fund universal appeal as a savings account and a checking account.

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THE LESSONS OF OCTOBER I’ve always believed that investors should ignore the ups and downs of the market. Fortunately the vast majority of them paid little heed to the distractions cited above. If this is any example, less than three percent of the million account-holders in Fidelity Magellan switched out of the fund and into a money-market fund during the desperations of the week. When you sell in desperation, you always sell cheap. Even if October 19 made you nervous about the stock market, you didn’t have to sell that day—or even the next. You could gradually have reduced your portfolio of stocks and come out ahead of the panic-sellers, because, starting in December, the market rose steadily.

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Fortunately for Doggle there is no date attached to these purchases, so Flint never realizes that Xerox and Sears have been in the portfolio since 1967, when bell-bottom pants were the national rage. Given how long Xerox has been sitting there, the return on equity is worse than it would have been in a money-market fund, but Flint doesn’t see that. Then Flint moves along to Seven Oaks International, which happens to be one of my all-time favorite picks. Ever wonder what happens to all those discount coupons—fifteen cents off Heinz ketchup, twenty-five cents off Windex, etc.—after you clip them from the newspapers and then turn them in at your supermarket checkout counter?

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

They are sold at a minimum $1,000 face value and in $1,000 increments above that. T-bills offer an advantage over money-market funds and bank CDs in that their income is exempt from state and local taxes. In addition, T-bill yields are often higher than those of money-market funds. For information on purchasing T-bills directly, go to www.treasurydirect.gov. Tax-Exempt Money-Market Funds If you find yourself lucky enough to be in the highest federal tax bracket, you will find tax-exempt money-market funds to be the best vehicle for your reserve funds. These funds invest in a portfolio of short-term issues of state and local government entities and generate income that is exempt from both federal and state taxes if the fund confines its investments to securities issued by entities within the state.

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Internet Banks Investors comfortable with the wide world of the Web might wish to take advantage of online financial institutions that reduce their expenses by having neither branches nor tellers and by conducting all their business electronically. Thanks to their low overhead, they can offer rates significantly above both typical savings accounts and money-market funds. And, unlike money-market funds, those Internet banks that are members of the Federal Deposit Insurance Corporation can guarantee the safety of your funds. To find an Internet bank, go to the Google search engine and type in “Internet bank.” You will also see many of them popping up when you do a rate search on www.bankrate.com for the banks with the highest yields.

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Those willing to accept somewhat more risk in the hope of greater reward could cut back on the proportion in bonds. Those who need a steady income for living expenses could increase their holdings of real estate equities, because they provide somewhat larger current income. A SPECIFIC INDEX-FUND PORTFOLIO FOR AGING BABY BOOMERS Cash (5%)* Fidelity Money Market Fund (FORXX), or Vanguard Prime Money Market Fund (VMMXX) Bonds (27½%)† Vanguard Total Bond Market Index Fund (VBMFX) Real Estate Equities (12½%) Vanguard REIT Index Fund (VGSIX) Stocks (55%) U.S. Stocks (27%) Fidelity Spartan (FSTMX), T. Rowe Price (POMIX), or Vanguard (VTSMX) Total Stock Market Index Fund Developed International Markets (14%) Fidelity Spartan (VSIIX), or Vanguard (VDMIX) International Index Fund Emerging International Markets (14%) Vanguard Emerging Markets Index Fund (VEIEX) Remember also that I am assuming here that you hold most, if not all, of your securities in tax-advantaged retirement plans.

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
by Danielle Dimartino Booth
Published 14 Feb 2017

Lehman’s demise triggered a tsunami that swept the globe in waves. “Lehman Brothers begat the Reserve collapse, which begat the money-market run, so the money-market funds wouldn’t buy commercial paper,” a Treasury official told the New Yorker. “The commercial-paper market was on the brink of destruction. At this point, the banking system stops functioning. You’re pulling four trillion [dollars] out of the private sector [money-market funds] and giving it to the government in the form of T-bills. That was commercial paper funding GE, Citigroup, FedEx, all the commercial-paper issues. This was systemic risk.

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Concurrent with the rate hike, the Fed quietly lifted the cap on a recently created lending facility to $2 trillion, insuring that in case of future disruption, the Fed’s balance sheet would act as a backstop to the financial system. Yellen had to hike the rate into positive territory to engage that lending option, which requires money market fund participation. With interest rates at the zero bound, money market funds have been operating in the red for years. As her fame has grown, Janet Yellen is recognized in restaurants and airports around the world. But her world has narrowed. Because the Fed chairman can so easily move markets with a few casual words, Yellen can’t get together regularly and shoot the breeze with businesspeople or analysts who follow the Fed for a living.

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By following its lead, the Fed risked fostering zombie corporations and banks. “I have worked and lived in Japan and we have learned from what they’ve done,” Fisher said. “But the fact is that we have no sustained experience in the modern era in the United States with T-bill rates and the effective fed funds rate trading near zero. We do know that money market funds will become unprofitable if rates get much lower. Let me just say to those who sort of dismiss that”—meaning Yellen—“I think we might look a little foolish if we drove some of them out of business, especially after creating two special facilities to support their continued intermediation functions on the basis that they were critically needed for their roles in the commercial paper market.”

The Bogleheads' Guide to Investing
by Taylor Larimore , Michael Leboeuf and Mel Lindauer
Published 1 Jan 2006

Load fund: A mutual fund that levies a sales charge. Long-term capital gain: Profit on the sale of a security held at least one year that generally results in lower tax. Market timing: Attempting to forecast market direction and then investing based on the forecasts. Money market fund: A mutual fund that invests in very-short-term securities. Money market funds attempt to maintain a constant $1 net asset value (NAV). Mortgage-backed securities: Bond-type securities representing an interest in a pool of mortgages. Municipal bond fund: A mutual fund that invests in tax-exempt bonds. These funds are best suited for higher-income taxpayers in taxable accounts.

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The measure of wealth is net worth: the total dollar amount of the assets you own minus the sum of your debts. So, the first thing we want you to do is calculate your net worth. Calculating your net worth is very simple. First, add up the current dollar value of everything you own. Such items include the following: • Cash in checking and savings accounts, credit unions, or money market funds The cash value of your life insurance • Your home and any other real estate holdings • Any stocks, bonds, mutual funds, certificates of deposit, government securities, or other investments • Pension or retirement plans • Cars, boats, motorcycles, or other vehicles • Personal items such as clothing, jewelry, home furnishings, and appliances • Collectibles such as art or antiques • Your business, if you own one and were to sell it • Anything else of value that you own Once you have the total current value of what you own, add up the total amount of all debts that you currently owe.

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Mutual funds are governed by the Investment Company Act of 1940, and in most cases by the states where they do business. Mutual funds are available in many varieties. There are equity mutual funds that invest in stocks, bond funds that invest in (you guessed it!) bonds, and funds that invest in a combination of both stocks and bonds (hybrid or balanced funds). There are also money market funds, whose goal is to offer a stable $1 per share value. Within each type of mutual fund (equity fund, bond fund), there are a number of funds with differing investment objectives. For instance, equity mutual funds include these funds: Aggressive growth funds • Growth funds • Growth and income funds • International funds Sector and specialty funds (such as REITs (Real Estate Investment Trusts) and health care) Just as with equity mutual funds, bond fund investors have a wide range of bond mutual funds to choose from.

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

Shareholders in the Reserve Primary Fund did lose money, even if only 3 percent. They, therefore, did have a reason to run on the Reserve. And the resulting fears of losses at other money market funds quickly led to runs elsewhere. This was serious business. Within days, “it was overwhelmingly clear that we were staring into the abyss—that there wasn’t a bottom to this—as the outflows [from money funds] picked up steam on Wednesday and Thursday.” In just a week, investors withdrew about $350 billion from prime money market funds. That meant, of course, that fund managers had to liquidate an equal volume of commercial paper, T-bills, and so on in order to meet redemption calls.

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The Fed pitched in, too, by establishing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. (AMLF, if you must know. And try saying the full title fast.) The AMLF was created to extend nonrecourse loans at low interest rates to banks willing to purchase high-quality asset-backed commercial paper from money market funds—who needed to sell it desperately because they were experiencing runs. Let’s dwell on the awkward word nonrecourse for a moment, because it’s important and this is not the last time you’ll see it. “Nonrecourse” means that if the assets in question (in this case, commercial paper) default, the lender (in this case, the Federal Reserve) can claim back only the collateral on the loans.

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But together, the Treasury’s modified money market guarantee program and the Fed’s AMLF successfully ended the run on the money funds. On February 1, 2010, the Fed shut the facility down, netting a small profit on the operation. The balances had long since dwindled to zero, anyway. But the battles to save the money market funds and the commercial paper markets did not end on September 22. On October 7, with the financial panic in full swing, the Board again invoked Section 13(3) to justify creation of the Commercial Paper Funding Facility (CPFF) to, in the Fed’s words, “provide a liquidity backstop to U.S. issuers of commercial paper.”

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

Issues related to tax-rate uncertainty, credit risk, call optionality, and trading costs combine to diminish in dramatic fashion the utility of tax-exempt bonds. For shorter-term maturities, the negative factors cause investors far less concern. In the case of a tax-exempt money-market fund, the near-dated maturity of the underlying securities obviates concerns regarding tax regime changes and mitigates concerns regarding credit risk. Money-market instruments carry no call options and trade in relatively efficient transparent markets. Short-term tax-exempt money-market funds deserve serious consideration. As term to maturity increases, the troubling aspects of tax-exempt debt increase in lock step. Changes in marginal tax rates and changes in credit quality possess the power to alter the value, positively or negatively, of longer-term tax-exempt bonds.

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Financial and nonfinancial liabilities further influence portfolio decisions. Home mortgages and personal loans comprise the largest components of most individual financial liabilities. From a portfolio perspective, liabilities act like negative assets. In other words, borrowing by an individual offsets lending (ownership of bond or money-market funds) by that individual. In fact, wealth-maximizing individuals compare the after-tax costs of debt with the after-tax returns from bonds, liquidating bond positions to pay off loans when the costs of debt exceed the returns from bonds. Rational investors consider liability positions when making asset allocations.

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To accommodate multiple goals, investors specify a hoped-for schedule of future financial flows, thereby defining the relevant investment horizon. By aggregating various needs and desires, a full picture of the investor’s time horizon emerges. The appropriate degree of investment risk depends on the time available until funds are needed. For periods of one to two years or less, investors ought to favor bank deposits, money-market funds or short-term bond funds. By avoiding material credit risk and searching for low management expenses, investors solve the simple problem of short-term investing. For terms of eight to ten years or more, investors face much more interesting, more daunting, and potentially more rewarding investment alternatives.

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis
by Johan Norberg
Published 14 Sep 2009

At about the same time as the family with children at Esperanto were served their tarred pigeon with pastella classique and almond, a money-market fund of great renown yet obscure to the general public, the Reserve Primary Fund, posted a message on its website: The value of the debt securities issued by Lehman Brothers Holdings, Inc. (face value $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00PM New York time today. As a result, the NAV [net asset value] of the Primary Fund, effective as of 4:00PM, is $0.97 per share 2 This message may not sound very dramatic, because money-market funds are not-or are at least not supposed to be-dramatic.

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Investing in such a fund is a way of lending short term to a diversified group of stable institutions, such as governments, banks, and large corporations. Most people see investing in them as a more profitable version of keeping their money under their mattress. In almost 40 years of history, hardly any money-market fund had ever lost money. Now that the Primary Fund's loss on Lehman paper had caused its funds to drop in value from $1.00 to $0.97, it had happened again-but on a huge scale. The upshot was a mass flight from money-market funds, on which many institutions were dependent for their financing, not least the special companies that the banks had crammed full of mortgage-backed securities and put outside their balance sheets.

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They finally concluded that it should work, there would be no systemic crisis, it was not the end of the world. And there would have been no systemic crisis had it not been for that money-market fund announcing a loss while the family with children was being served their pigeon at the Stockholm restaurant. The money markets, which had seemed unsafe as far back as August 2007 because of mortgage-backed securities, now came across as downright lethal. By that Wednesday night, institutional investors had withdrawn almost $150 billion from them, more than one-twentieth of their total value. Panic-stricken money-market funds were selling commercial paper to be able to give investors their money back. On Thursday, Putnam Investments had to liquidate a $15 billion fund to cope with the pressure for repayments.

All the Devils Are Here
by Bethany McLean
Published 19 Oct 2010

The commercial paper got a top rating from the rating agencies, making it possible for money market funds to buy it. However, in order to obtain that all-important top rating, the sponsoring bank, or another bank, invariably had to provide some kind of guarantee, in the event that the vehicle found itself unable to replace the commercial paper when it came due. As the market got crazier, money market funds became more and more enamored of this paper; they, too, were competing for that extra little bit of yield. Although money market funds were serving the role of the old-fashioned bank—they were ultimately the real lender—they weren’t regulated the way banks were.

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Since they were holding highly rated securities—as SEC rules required them to do—no one in the government was concerned with the quality of the collateral. But what would happen if the money market funds all started questioning the quality of the assets backing their paper at the same time? What if they all stopped buying it? Either the sponsoring bank would have to provide liquidity—damaging its own balance sheet—or the vehicles would all have to start dumping assets to raise cash. Neither scenario was pleasant to contemplate. Money market funds were also a core enabler of the deepest, darkest, least noticed part of the market’s plumbing. This was the so-called repo market, which made it possible for firms to pledge assets in return for extremely short-term loans, often as short as overnight.

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For the Bear guys, this was indeed a savvy way to get low-cost, low-risk leverage; among other things, lenders couldn’t simply yank cash from the funds, the way repo lenders could. But the risk was still there—in this case, it resided at the bank that underwrote the CDO. That’s because instead of selling long-dated debt, the new CDOs sold very short-term, low-cost commercial paper. This paper, in turn, was bought by money market funds around the country. In order to make the commercial paper palatable for money market funds, the bank that underwrote the CDO—often Citigroup and, later, Bank of America—would issue what was called a liquidity put. That meant that if buyers for paper became scarce—in the event, say, of a disruption in the market—the banks would step in and buy it themselves.

The Alchemists: Three Central Bankers and a World on Fire
by Neil Irwin
Published 4 Apr 2013

Not every program his administration undertook did much good, but there was a spirit of experimentation, of throwing everything the government had against the wall to see what would stick. As the money market funds trembled, Bernanke directed his troops to adopt the same approach: Try everything. First, just three days after the Reserve Fund broke the buck, came the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF. With Fed staffers in New York and Washington already stretched thin with crisis fighting, the program was administered by the Federal Reserve Bank of Boston, which had particular expertise in money market funds: The city is home to a number of the major mutual fund groups, as well as State Street, a bank that carries out transactions for many of the funds.

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With Fed staffers in New York and Washington already stretched thin with crisis fighting, the program was administered by the Federal Reserve Bank of Boston, which had particular expertise in money market funds: The city is home to a number of the major mutual fund groups, as well as State Street, a bank that carries out transactions for many of the funds. The idea was to use infrastructure that had long been in place to channel money to banks to back up the money market funds instead. The Fed would lend money to banks, which could then buy the securities the money market funds were selling off and pledge them to the Fed, with the banks themselves taking no financial risk for their role as intermediary. The program lent out $24 billion on its first day of operation, September 22, 2008, and $217 billion before the panic wound down, routing money through banks like State Street and J.P.

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To satisfy the Fed’s lawyers, the program could accept commercial paper backed only by specific assets, such as credit card loans due. But with a buyer in the market for even just a subset of the securities they owned, the money market funds could raise enough money to avoid breaking the buck. It took a little longer to come up with the next mode of attack. The Commercial Paper Funding Facility, announced on October 7, focused on the other side of the same problem, the difficulty companies were having selling their commercial paper, due in large part to the money market funds not being available as a buyer. With the CPFF, the Fed used its 13(3) authority to lend money in “unusual and exigent circumstances” to fund a “special purpose vehicle” (SPV) that purchased commercial paper from eligible issuers.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

It’s also true that the mutual fund industry does its best to soft pedal this inconvenient fact. No major fund company’s money market fund has ever “broken the buck,” even though commercial paper does occasionally default. In 1990, paper issued by Mortgage and Realty Trust, held by many large money market accounts, fell into default. Passing these losses onto the shareholders would have resulted in a devastating loss of confidence, and without exception, the fund companies reimbursed their money market funds. One company alone—T. Rowe Price—spent about $40 million repairing the damage. But there is no guarantee that they will always be able to do this.

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I suggest that at approximately age ten you set up a small portfolio with two or three asset classes, as well as a money market fund in the child’s name. Have him or her learn how to sort and file the statements properly as they arrive in the mail and teach the child how to track the value of each fund. Every quarter, sit down with all involved siblings and have an “investment conference” during which the performance of each account is discussed. Their reward for these chores will be the dividends from the stock and money market funds, as well as half of the remaining increase in investment value, if any, each December 31.

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For this reason, they tend to be bad actors in a portfolio. Most experts recommend keeping your bond maturities short—certainly less than ten years, and preferably less than five. From now on, when we talk about “stocks and bonds,” what we mean by the latter is any debt security with a maturity of less than five to ten years—T-bills and notes, money market funds, CDs, and short-term corporate, government agency, and municipal bonds. For the purposes of this book, when we use the term “bonds” we are intentionally excluding long-term treasuries and corporate bonds, as these do not have an acceptable return/risk profile. I’ll admit that this is a bit confusing.

Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic---And Prevented Economic Disaster
by Nick Timiraos
Published 1 Mar 2022

The move threatened to spark runs on other “prime” money-market funds that invested in short-term corporate debt, forcing the government to step in. Not only would savers get run over if other investors raced to withdraw money from funds, but large US companies that relied on money funds to buy their commercial paper could also find themselves in a big pinch. The Boston Fed, which had special expertise in the area—many of the largest mutual funds are based in New England—had rolled out yet another “unusual and exigent” program that loaned money to banks in order to buy commercial paper from money-market funds, bailing them out.

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“They were worried that they were going to break the buck,” he said.10 Rosengren began sending flares to officials at the Fed board as well as the New York Fed, and he pulled together veterans from the 2008 crisis to design a newer version of their initial rescue operation. “The question was did we think we could skate through? And did we really want to be bailing out prime money-market funds again?” Rosengren said. “There was a fair amount of back and forth, but it became clear that this really wasn’t about the money-market funds. You couldn’t transact in short-term credit markets at all.”11 “Fiscal news driving better markets, but still big concerns over MMFs,” Powell wrote in a 3:31 p.m. email to Clarida. “Think big” With dozens of staffers working on getting the emergency-lending facilities, Powell turned his attention to making sure that Congress knew what the Fed was doing.

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The OCC, established in 1863, is an independent bureau within the Treasury Department that charters and regulates national banks and federally chartered branches of foreign banks. Because the Fed’s money-market-fund backstop was going to run through the banking sector, it needed the OCC to waive regulatory capital rules. Banks would borrow from the Boston Fed and use the money to purchase assets from money-market funds, pledging those assets as collateral for their Fed loans. There was a hitch: the Fed needed the OCC to waive the requirement that banks have capital to absorb potential losses on these assets.

The End of Wall Street
by Roger Lowenstein
Published 15 Jan 2010

What exacerbated the problem was that the SIVs had funded themselves by selling short-term IOUs (“commercial paper,” in the parlance of Wall Street), often to money market funds. Money funds, regarded as the least risky of investments, were owned by millions of ordinary savers. In other words, financial engineers had contrived to connect safety-minded moms and pops to the mad cow of the financial world—exactly the stuff of which systemic crises are made. As the value of SIV paper plunged, the money market funds themselves became imperiled. Roughly a dozen of them were on the verge of “breaking the buck”—that is, the net asset value of these funds was about to fall below the par value of $1 that investors had come to assume was guaranteed.

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Financiers had discovered the key to limiting risk, and central bankers, adherents to the cult of the market, had mastered the mysterious art of heading off depressions and even the normal ups and downs of the economic cycle. Or so it was believed. Then, Lehman’s collapse opened a trapdoor on Wall Street from which poured forth all the hidden demons and excesses, intellectual and otherwise, that had been accumulating during the boom. The Street suffered the most calamitous week in its history, including a money market fund closure, a panic by hedge funds, and runs against the investment firms that still were standing. Thereafter, the Street and then the U.S. economy were stunned by near-continuous panics and failures, including runs on commercial banks, a freezing of credit, the leveling of the American workplace in the recession, and the sickening drop in the stock market.

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In early December they lifted the Dow into the upper 13,000s, within 5 percent of its all-time peak. Why such renewed enthusiasm? Traders believed or hoped that Merrill, perhaps even Citigroup, would prosper under new leadership. As for Lehman Brothers, it had thus far escaped with only a modest write-down. The crisis in money market funds had passed, and Citi and other banks had retrieved some of their orphaned SIV assets—a sign to the hopeful that the market could cure itself. The trouble, which bond traders saw more clearly, was that banks were not manufacturing fresh credits; they were refusing to lend. The cycle described by Rodriguez—falling securities prices leading to losses and thus lessened capital ratios—was, inexorably, putting a damper on credit.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

A different mechanism of regulatory arbitrage was created for retail customers – the money market fund. An investor in a US money market fund holds a share in a portfolio of debt, while the manager of the fund is expected to redeem the share at a fixed price and the income from the portfolio is paid to the investors (in effect, the depositors). Cheques can be written on the money market fund, so that in the eyes of the saver, but not of the regulator, the money market fund is a bank account. In the USA these funds have come to rival conventional bank deposits in scale. The role of money market funds is almost entirely confined to countries that have, or once had, significant restrictions on interest on current accounts.

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In the UK, where no equivalent of Regulation Q has ever existed, money market funds have negligible market share. Since money market funds were not technically deposits, they did not qualify for deposit insurance. However, when the very large Reserve Primary Fund – which held some Lehman debt – ‘broke the buck’ (was unable to offer redemption at the fixed price) in 2008, pressure from aggrieved investors and fear of a run on other funds led to an extension of government guarantees of deposits to such investments. Since 2008 there has been extended – and still inconclusive – discussion of an appropriate new regulatory framework for money market funds. Regulation Q was gradually weakened and became ineffective after 1980, although it was not finally abolished until 2011.

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This understatement is much greater under US GAAP than European IFRS, so that US figures are too low relative to the European ones. Fig. 8 summarises flows through the deposit channel. Total deposits everywhere amount to about one year’s national income. The differences between the USA and the three European countries are more apparent than real. In the USA money market funds (which are effectively deposits) total around $4 trillion, and the main holdings of these money market funds are very short-term securities issued by banks, or the quasi-banks that are the Treasury operations of large corporations such as Apple or Exxon Mobil. This American exceptionalism is one aspect of the general tendency for more intermediation to take place through securities markets in the USA than in Europe.

The Global Money Markets
by Frank J. Fabozzi , Steven V. Mann and Moorad Choudhry
Published 14 Jul 2002

Debt Obligations of Financial Institutions 99 they are not publicly traded. Seven of the largest institutional money market funds held FAs as of mid 2001. The top four issuers of FAs sold to institutional money market funds are Transamerica Occidental Life, Monumental Life, New York Life, Allstate Life, and Jackson National Life. The major issuers of FAs sold to retail-oriented money market funds are Monumental Life, Travelers, Metropolitan, GE Life and Annuity Assurance Co., and Pacific Life. Five of the top ten retail-oriented money market funds invest in FAs as of mid 2001. A study by Moody’s in October 2001 investigated the reasons why money market mutual funds invest in FAs.6 The following reasons were cited: 1.

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Typically, the only contact retail investors have with the money market is through money market mutual funds, known as unit trusts in the United Kingdom and Europe. Money market mutual funds are mutual funds that invest only in money market instruments. There are three types of money market funds: (1) general money market funds, which invest in wide variety of short-term debt products; (2) U.S. government short-term funds, which invest only in U.S. Treasury bills or U.S. government agencies; and (3) short-term municipal funds. Money market mutual funds are a popular investment vehicle for retail investors seeking a safe place to park excess cash.

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Placing funds in a unit trust is an effective means by which smaller investors can leverage off the market power of larger investors. In the UK money market, unit trusts typically invest in deposits, with a relatively small share of funds placed in money market paper such as government bills or certificates of deposit. Investors can invest in money market funds using one-off sums or save through a regular savings plan. THE MONEY MARKET The money market is a market in which the cash requirements of market participants who are long cash are met along with the requirements of those that are short cash. This is identical to any financial market; the distinguishing factor of the money market is that it provides for only short-term cash requirements.

Limitless: The Federal Reserve Takes on a New Age of Crisis
by Jeanna Smialek
Published 27 Feb 2023

The central bank had done a lot on that frantic Sunday, but it hadn’t put forward any specific programs to help commercial paper issuers and investors or to stop the bleeding at money market funds. Low rates would do little to fix the meltdown under way, and with the Treasury market functioning badly, it wasn’t clear that super-cheap borrowing costs would even make it to consumers. The turmoil was enough to gum up the flow of new credit as banks waited to see what would happen next. The Fed desperately needed to unclog the financial pipes. “If the Fed waits too long,” Bank of America strategists had written in a note about money market funds the Friday before, “the risk of a large-scale run could increase.”[32] After Fed officials had wrapped up their March 15 meeting, the boardroom where policy makers usually sat elbow to elbow eerily empty, Powell pulled Andreas Lehnert to the side.

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Banks had been made safer—for small ones, the new regulations were onerous—while hedge funds and nonbank lenders remained outside the central bank’s purview, with oversight split among other regulators who did not have similarly clear mandates for protecting system-wide financial stability. Nonbank regulation remained flawed. In one of the clearest examples of that, Securities and Exchange Commission money market fund reforms did not go far enough to prevent mass withdrawals at the first sign of major trouble thanks largely to a major industry lobbying push. In fact, onlookers warned as the regulations were passing that they probably made the funds even more dangerous.[37] And by the time Powell succeeded Yellen in 2018, the newly built and incomplete regulatory infrastructure—meant to erect a safety barrier around Wall Street so that its future blowups wouldn’t hit innocent bystanders—was poised for a quiet dismantling at the hands of President Donald J.

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In fact, they had begun to think about how they could tweak the language in their post-meeting statement to leave their options open without cutting immediately. Then, over a short forty-eight hours, markets began to fall apart. The change started on March 11, when the announcement that the world was officially experiencing a pandemic helped to send the stock market into free fall. After that day, what had looked like an orderly withdrawal from money market funds began to look more like the modern version of a run on the bank. Investors asked for their investments back en masse, and funds had to shuffle to free up cash.[25] In the process, they stopped buying commercial paper. Worried companies, seeing that they would lose a crucial source of funding as the short-term debt market froze, rushed to draw on their lines of credit with banks.

The New Depression: The Breakdown of the Paper Money Economy
by Richard Duncan
Published 2 Apr 2012

In the 1980s, they began to look for a broader definition of money that would encompass other money-like instruments in addition to cash and demand deposits. New monetary aggregates were devised: M1 was the name given to the traditional definition of money, i.e., currency plus demand deposits. M2 includes M1 plus time deposits and money market funds. M3 includes M2 plus time deposits and term repos. MZM, money zero maturity, includes M2 less time deposits, but including money market funds. And there were others. It had been hoped that some broader definition of money would produce the stable relationship between the quantity of money and the price level that the quantity theory of money asserted should exist.

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EXHIBIT 1.7 Total Credit Market Debt Held by the Creditors Source: Federal Reserve, Flow of Funds 1945 2007 Total $ billions $355 $50,043 Household Sector 26% 8% Financial Sector 64% 73% including: Commercial banks 33% 18% Life insurance companies 12% 6% Savings institutions 7% 3% GSEs & GSE-backed mortgages 1% 15% Issuers of asset-backed securities 0% 9% Money market funds 0% 4% Mutual funds 0% 4% Others financial sector 11% 14% Rest of the World 1% 15% Miscellaneous 9% 4% 100% 100% At the end of World War II, the credit structure of the United States was simple and straightforward. It became vastly more complicated and leveraged, however, as time went by and new kinds of financial entities were permitted to extend credit.

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They used the proceeds to buy mortgage loans, credit card loans, student loans, and some other credit instruments, which they then bundled together in a variety of ways and sold to investors as investment vehicles with different degrees of credit risk. They were not significant players in the credit markets until the second half of the 1980s. By 2007, however, ABS issuers supplied 12 percent of the credit provided by the financial sector or 9 percent of all credit outstanding. Mutual funds and money market funds had also come of age during the 1980s, and by 2007, they provided 6 percent and 5 percent, respectively, of all credit supplied by the financial sector. Credit without Reserves By 2007, the GSEs and the issuers of ABSs provided 24 percent of all the credit in the country. Their rise made the financial system much more leveraged and complex than when it had been dominated by the commercial banks.

Broken Markets: A User's Guide to the Post-Finance Economy
by Kevin Mellyn
Published 18 Jun 2012

S&Ls were allowed to pay 1/4 percent more Broken Markets than banks, so they had an inside track on collecting household savings to fund mortgages.When Federal Reserve Chairman Paul Volcker pumped up rates to break the fever of the Great Inflation, the bank prime rate hit 21.5 percent. Banks were only allowed to pay depositors 5 percent and S&Ls 5 1/4 percent. Depositors fled both, as the brokerage industry invented money market funds, which offered market rates. Congress phased out Regulation Q in the early 1980s (though the prohibition on paying interest on demand accounts remained until recently) and materially raised deposit insurance. This set off a dangerous competition for deposits based on high rates, a competition that attracted a lot of opportunistic and fickle hot money into the banks offering them.

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When the players know that they are going to be paid what is owed to them, they will pay what they owe others, and stark fear will subside while the authorities “resolve” the hopeless cases, winding down the businesses or selling off the bits. When banks in the euro zone are stuffed with toxic dollar paper sold to them by investment banks, and other banks won’t give them overnight loans and the money market funds won’t buy their IOUs either, things get more than a little complicated. The markets are too seamlessly interconnected— too big for the old playbook to work. When it was first spelled out by Walter Bagehot in Lombard Street, the idea that one bank (in his case, the Bank of England) could hold the reserves of the whole banking system and lend without stint in a panic against all valid claims (commonly called the “lender of last resort” role) was controversial but highly practical.

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Banks can lend money in excess of their deposits not only because they can issue medium- and long-term debt in the market, but because they can borrow funds overnight from one another in the interbank market. European banks can lend their clients dollars because they can issue short-term paper to US money market funds.They can also hedge their interest rate and currency risks 101 102 Chapter 5 | Global Whirlwinds with each other and to customers by doing swaps and trading other derivatives with each other.These activities are all absolutely routine and essential to making the system work.They are also global, with the same big banks operating in multiple centers, including New York, London, Tokyo, and Singapore.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better
by Andrew Palmer
Published 13 Apr 2015

As bad as things got during the worst of the financial crisis, for example, bank customers remained generally calm. There were runs at a few troubled institutions, but often they were the self-policed kind, as large depositors reduced their balances below the limit for federal deposit insurance. Money-­market fund investors were altogether more skittish. A day after Lehman Brothers went bust, the Reserve Primary Fund, the oldest money-market fund, broke the buck when it wrote off its holdings of Lehman debt. Some $300 billion fled the funds in the days following Lehman’s bankruptcy, as investors suddenly realized that they were less protected than they had thought. Talk to regulators about the events of September 2008, and they will tell you that nothing was more alarming than this stampede.

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An annual survey by McKinsey & Company of the world’s capital markets shows that in 2012, the value of global financial assets (excluding derivatives and physical assets such as property) stood at $225 trillion, $50 trillion of which were “riskier” equities and $175 trillion of which were “safer” loans and bonds.8 The precrisis development of America’s mortgage market conformed to this model: securitizing mortgages and tranching them created a supply of debt instruments that appeared to be as safe as the limited amount of US Treasuries and managed to deliver a little bit more income than normal government debt. So too did the money-market fund, a financial instrument that offered investors the money-like properties of a bank deposit—in other words, the ability to get your cash back immediately without any loss of ­principal—but managed to deliver higher income. It is not the dash for risk that lands the world’s financial system in trouble; it is the hunt for safe returns.

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Putting money into highly rated “collateralized-debt obligations” (CDOs), which bundle up the lower tranches of existing securitizations, was an opaque bet that America would not suffer a national housing-market meltdown. Similarly, putting your money into a bank account is a decision that is informed by an explicit system of deposit insurance: you will get your money back because the government guarantees it. For many, investing in a money-market fund is also a bet on a promise, but this time by a private actor not to “break the buck”—in other words, to give a dollar back for each dollar invested. These new products may look like the old ones, in other words, but there are differences that investors do not fully appreciate. As a result, when those underappreciated risks do surface, they come as a shock to market participants and prompt panic.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

As the dominance of equity funds waned, money market funds, the fund industry’s great innovation of the mid-1970s, quickly became the industry’s most powerful engine of growth. In 1984, money fund assets of $235 billion were three times equity fund assets. Their growth didn’t let up until 2008, when money fund assets reached $3.8 trillion. With the failure of a giant money fund in 2008, followed by challenges to the money fund structure by federal regulators, assets retreated to $2.6 trillion, now 21 percent of the mutual fund industry total. With the rise of bond funds and money market funds, nearly all of the large fund managers—which for a half-century had primarily operated as professional investment managers of a single equity fund or a handful of equity funds—became business managers offering a wide range of investment options, financial department stores that focused heavily on administration and marketing.

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Today, the total number of equity funds comes to a staggering 5,091. Add to that another 2,262 bond funds and 595 money market funds, and there now are 7,948 traditional mutual funds, plus another 1,446 exchange-traded index funds. It remains to be seen whether this huge increase in investment options—ranging from the simple and prudent to the complex and absurd—will serve the interest of fund investors. I have my doubts, and so far the facts seem to back me up. The good news is that many of the new funds were bond funds and money market funds, which for decades have provided generous premium yields over stocks and also over traditional bank savings accounts, where yields were constrained by federal government regulation until 1980.

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What we need is transparency: ways for investors to see information, understand it, and weigh the potential risks and opportunities of their investment options. Transparency is at the core of effective market regulation, precisely because it empowers investors. Sadly, most efforts to improve transparency are fought by a well-funded mutual fund lobby and its related allies. One recent SEC proposal, to have money market funds mark to market their holdings every day, is one such example. This basic idea would not only give investors greater insight into their holdings. It would also impose a healthy appreciation for liquidity among mutual fund managers. Yet the mutual fund industry predictably has fought the idea.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
by Simon Johnson and James Kwak
Published 29 Mar 2010

.* On Tuesday, with the collateral damage caused by Lehman’s failure beginning to spread, the Fed stepped in with an $85 billion credit line to keep AIG afloat, fearing that if the insurer defaulted on its hundreds of billions of dollars in credit default swaps, its counterparties would suffer devastating losses—or, at the least, fear of those losses would cause the financial markets to grind to a halt. Also on Tuesday, the Reserve Primary Fund, one of the largest money market funds, announced that it would “break the buck”; because of losses on Lehman debt, it could not return one dollar for each dollar put in by investors. As a result, money flooded out of money market funds, forcing Treasury to create a new program to provide insurance for those funds. The flight from money market funds dried up demand for the commercial paper used by corporations to manage their cash, raising the specter that major corporations might not be able to make payroll.

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However, the high interest rates of the 1970s convinced investors to move their savings from bank accounts to money market funds, which invested in short-term bonds and commercial paper. Increasing affluence also fed the growth of mutual funds and pension funds, which sought out higher-yield investments. This demand for yield created the opportunity for investment banks to raise money for corporate clients by issuing commercial pa-per and bonds and selling them directly to large institutional inves-tors. Money still flowed from households to corporations, but instead of passing through commercial banks, now it could pass through a money market fund or mutual fund—with a helping hand from Wall Street.

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The bankruptcy of Lehman Brothers in September 2008 accelerated the collapse of American International Group, forcing it into the arms of the Federal Reserve; Lehman’s failure also forced the Reserve Primary Fund to “break the buck,” causing a sudden loss of confidence in all money market funds; in turn the flood of money out of money market funds caused the commercial paper market to freeze, endangering the ability of many corporations to operate on a day-to-day basis. The failure of Lehman also caused large cash outflows from the remaining stand-alone investment banks, Goldman Sachs and Morgan Stanley. The sequence of falling dominoes was only stopped by massive government rescue measures, and the panic that occurred despite the government’s intervention helped transform a mild recession into the most severe recession of the postwar period.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

In the early 1990s, the estimates were that the losses to the US taxpayers would amount to $150 billion but the increase in the US growth rate meant that the RTC received more money than anticipated from the sale of collateral and bad loans so the losses totaled a bit more than $100 billion.61 There was some question whether a portion of this cost to the taxpayers could be reduced by increasing the insurance premiums on bank deposits – a suggestion resoundingly opposed by sound banks.62 During the 2008 crisis the US government extended deposit insurance to the money market funds; the fear was that otherwise the owners of these funds would transfer their money to banks whose deposits were guaranteed by the FDIC. The money market funds then would be obliged to sell assets, and the rapid sale of assets would depress their prices. Some money market funds then would ‘break the buck’; the net asset value per share would decline below $1.00 – which would trigger a massive, self-justifying run. Exchequer bills One ancient device short of lending money to a firm in trouble was to issue marketable securities to the firm against appropriate collateral.

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The parallel financial system developed alongside the traditional system in response to the regulations imposed on traditional banks; thus money market funds, offshore banking, and special investment vehicles are components of this system. Fannie Mae and Freddie Mac had a cost advantage relative to traditional mortgage lenders because of the implicit government guarantee of their bonds, but they also had an advantage because they had much lower capital requirements. During the financial crisis, the money market funds were brought under the umbrella of the federal deposit insurance guarantees to staunch incipient runs – a free lunch for the owners of money market funds and for the firms that issue these IOUs.

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The Eurocurrency deposit market surged in the 1960s as an end-run around the regulations imposed on US banks by the Federal Reserve and the Federal Deposit Insurance Corporation; the US dollar deposits produced by the branches of US banks in London and other offshore centers were not subject to interest rate ceilings, reserve requirements, and deposit insurance premiums. The US stock brokerage firms developed money market funds that were a close substitute for bank deposits in the 1970s and paid interest on these deposits (the deposits were not guaranteed by any agency of the US government – at least not until the financial crisis in the autumn of 2008). Currency school vs banking school One feature of the history of monetary theory is a continuing debate between two different views – the Currency School and the Banking School – about how to manage the growth of the money supply.

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee , Jamie Lee and Kevin Coldiron
Published 13 Dec 2019

Generally, the most acceptable means of payment is cash. A savings deposit in a bank can easily be converted into cash at a one-to-one rate without risk of capital loss and therefore is considered to be money. Money market funds, for example, are included in broader measures of money, but potentially there is somewhat less ease in converting a money market fund into a direct means of payment than there is a bank savings deposit. Also, although money market funds are generally assumed to have little risk of capital loss, the financial crisis of 2008 indicated this may not necessarily always be so. Because some classes of monetary asset—balances in checking accounts, for instance—are clearly closer to the pure definition of money than others, there are different statistical measures of money supply.

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The concept of Divisia money is a measure of money derived as a weighted average, in which different monetary assets are accorded a weighting based on their degree of “moneyness,” the appropriate weights usually being derived from the structure of interest rates. Cash, which pays no interest, would have the highest weight in the aggregate and assets such as money market funds a much lower weight. Measures of Divisia money calculated for the United States in the post–global financial crisis period tended to show the growth rate of money on this basis to be low. However, it can be argued that what really distinguishes the purer forms of money from less money-like substitutes or nonmonetary assets is the latter’s price volatility with respect to cash.

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Without that implicit, or even explicit, support, it would be difficult for investors, or the public as a whole, to accept that various formerly nonmonetary assets were The Monetary Ramifications of the Carry Regime 113 now as good as money. In 2008, at the height of the financial crisis, the US government introduced a temporary guarantee for money market funds. In Europe, at the height of the euro area crisis, the European Central Bank announced its “whatever it takes” approach, interpreted as a statement of preparedness to guarantee the values of peripheral European government debt. These and all the other post–crisis and “experimental” monetary policy measures could be argued to have increased the moneyness of a whole range of financial assets.

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History
by Diana B. Henriques
Published 18 Sep 2017

These men might not have known it yet, but the reaction could reach even farther than they feared. David Taylor had lured back deposits from a number of money market funds over the past year, and if Continental failed, some of them might have to “break the buck”—that is, they might be unable to meet their implicit promise to always redeem their shares for a dollar. That would send the panic surging into the mutual fund industry, a market that these men did not regulate. A sudden exodus of cash from money market funds, regulated by the SEC, would have exacerbated the overall financial gridlock, because money market funds were becoming an important source of short-term credit for other banks and financial institutions, and even for some major corporations.

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“Can you stop whatever you’re doing and come over”: Longworth and Barnhart, “The Panic Followed the Sun.” but that had only heightened the alarm: Ibid. A sudden exodus of cash from money market funds: Mark Carlson and Jonathan Rose, “Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois,” Finance and Economics Discussion Series 2016-003, Washington, Board of Governors of the Federal Reserve System, http://dx.doi.org/10.17016/FEDS.2016.0003, p. 1. The link between money market funds and the wider economy, which became clear in the 2008 crisis, is that the funds are a ready market for corporate commercial paper, the very short-term notes that top-rated businesses can sell to finance their cash flow needs.

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The link between money market funds and the wider economy, which became clear in the 2008 crisis, is that the funds are a ready market for corporate commercial paper, the very short-term notes that top-rated businesses can sell to finance their cash flow needs. In 2008, a run on money market funds—triggered by the Lehman bankruptcy, which caused a giant money market fund to lose money on Lehman’s commercial paper—nearly disabled the commercial paper market. Several had already had to jack up the rates they paid: Robert A. Bennett, “$4.5 Billion Credit for Chicago Bank Set by 16 Others,” New York Times, May 15, 1984, p. 1. the mighty Federal Reserve also stood ready to lend: Carlson and Rose, “Can a Bank Run Be Stopped?” p. 3. the worst bank runs that would occur in the aftermath of the 2008 financial crisis: Ibid., p. 1.

The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich
by David Bach
Published 27 Dec 2016

GETTING AROUND THE MINIMUMS Many brokerage firms may tell you that in order to open a money market account with them you need to make an initial deposit of at least $2,000. If that seems pretty steep to you, don’t give up—there is often a way around it. Ask the brokerage if they offer a money market fund that takes systematic investments. Most do, and generally speaking, as long as you sign a form agreeing to make regular monthly investments, they’ll let you open a brokerage account to invest in a money market fund with as little as $100. (Keep in mind, however, that if you open an account this way, you generally don’t get check-writing privileges or an ATM card.) NOW MAKE IT AUTOMATIC Ultimately, you will want to keep your rainy day fund separate from your checking account.

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What you want to do with your emergency money is put it in a money market account that pays reasonable interest. A money market account is one of the simplest and most secure alternatives around for anyone who wants to put aside some cash and earn a reasonable return on it. When you make a deposit in a money market account, you are actually buying shares in a money market fund—a mutual fund that invests in the safest and most liquid securities there are: very short-term government bonds and sometimes highly rated corporate bonds. Just a few years ago, you generally needed a minimum of as much as $10,000 to open a money market account. Because of this, many people still mistakenly think these accounts are for the rich.

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FINDING THE RATE MONEY MARKET ACCOUNTS ARE PAYING To get an up-to-date look at what rates are available, here is what you should do. 1. Get a copy of a financial publication such as the Wall Street Journal, Investor’s Business Daily, or Barron’s. They all offer extensive lists of what interest rates different money market funds are paying. Similar information (though not quite so detailed) can also be found in USA Today or possibly even your local paper. 2. Go to www.​bankrate.​com. This web site not only allows you to compare money market rates being offered by different institutions but also indicates the minimum deposit each requires to open an account.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

On Monday, the Reserve Primary Fund, run by the once highly cautious founders of the very first money market fund (see Chapter 6), announced that it had more than 1 percent of its assets in Lehman commercial paper. Its investors, stunned they could lose money at all, immediately began to withdraw what could have amounted to $5 billion from the fund. If investors in other money market funds followed, the consequences were unimaginable. Money market funds would sell their commercial paper willy-nilly. No Wall Street firm might survive. By the end of the week, the Treasury decided to guarantee the funds in all money market funds and stemmed the tide—what could have been a true bank run every bit as frightening as the bank runs of the early 1930s. Geithner and Paulson tried to get the stronger banks to merge with weaker ones, in particular, Goldman with Citigroup and JPMorgan Chase with Morgan Stanley, but the deals did not work out.

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Paulson, the former CEO of Goldman, had been on the phone with Lloyd Blankfein several times during the negotiations, though he had later claimed he had nothing to do with the Fed’s bailout of the firm. The creditors absorbed little of the losses, only the U.S. taxpayers did. Money market funds were also in crisis, perhaps the most dangerous problem of all. They were generally considered as safe as U.S. Treasury bills by their investors, even when their charters allowed them to invest in bank CDs, which many now did. But some had bought Lehman CDs for the higher yield. On Monday, the Reserve Primary Fund, run by the once highly cautious founders of the very first money market fund (see Chapter 6), announced that it had more than 1 percent of its assets in Lehman commercial paper.

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At a dinner at the Waldorf-Astoria in New York, John McGillicuddy, the chairman of Manufacturers Hanover, “had to be physically restrained from attacking me,” recalled Bent. But Wriston saw an opportunity. For one thing, such funds invested in his large CDs. More important, the growth of the Reserve Fund and the quick entry into the market of other money market funds encouraged some bankers at smaller institutions to join Wriston’s lobbying efforts against Regulation Q. Until then, small banks supported Regulation Q because it limited the large big-city competitors, which might be willing to pay more for depositor money than the smaller banks could afford.

Crashed: How a Decade of Financial Crises Changed the World
by Adam Tooze
Published 31 Jul 2018

Or the German bank could borrow directly in the United States (option 3), for instance from an American money market fund eager to earn slightly more than the returns offered by Treasurys, now that the Chinese were buying them. The result would be a German bank with a balance sheet that featured liabilities and assets of different maturities and denominated in a variety of currencies. And its counterparts would include a bank or other business that had lent dollars in exchange for euros (if it had chosen funding options 1 or 2), or an American money market fund holding dollar-denominated debt issued by a German bank (option 3). In the national balance of payments statistics one would see both borrowing from and lending to America happening within the accounts of the same bank.

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Story, “Testy Conflict with Goldman Helped Push A.I.G. to Edge,” New York Times, February 6, 2010. 24. Ibid.; https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0701-Goldman-AIG-Collateral-Call-timeline.pdf. 25. P. E. McCabe, “The Cross Section of Money Market Fund Risks and Financial Crises” (FEDS Working Paper 2010-51, September 12, 2010). 26. M. T. Kacperczyk and P. Schnabl, “How Safe Are Money Market Funds?,” Quarterly Journal of Economics 128 (2013), 1073–1122. 27. Board of Trustees of the Primary Fund-In Liquidation, “Additional Information Regarding Primary Fund-In Liquidation,” September 23, 2014. 28. Gorton and Metrick, “Securitized Banking and the Run on Repo.” 29.

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The ABCP conduits organized bundles of securitized assets from the United States and Europe.13 With those securities as collateral they then issued short-term commercial paper, which was bought by the managers of cash pools in the United States. In 2008, $1 trillion, or half of the prime nongovernment money market funds in the United States, were invested in the debt and commercial paper of European banks and their vehicles.14 A large portion of this simply moved from one office on Wall Street to another, with one address being adorned with the name of a European bank. But hundreds of billions of dollars took a more circuitous route.

The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life
by J L Collins
Published 17 Jun 2016

We used to keep ours in VMMXX (Vanguard Prime Money Market Fund). At the time interest rates were higher and money market funds typically offered better interest rates than bank savings accounts. But with interest rates currently at historic lows, money market funds pay close to zero percent. Bank interest rates are now slightly higher. Plus they come with FDIC insurance on accounts up to $250,000. For these reasons, we now keep our cash in our local bank and in our online bank, which happens to be Ally. Should interest rates rise and money market funds again offer better rates, we’ll switch back.

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Backed, as the saying goes, by “the full faith and credit of the United States Government.” Of course, that’s us, the U.S. taxpayers and the same folks owed most of the 2.7 trillion. So the U.S. Treasury Bonds held by the Trust Fund are real things with real value, just like the U.S. Treasury Bonds held by the Chinese, the Japanese, numerous bond and money market funds and countless numbers of individual investors. Yeah, but I’d still feel better if they hadn’t spent the money I contributed and if it really was cold hard cash in a lock box I could draw on. Well, OK, but cash is a really lousy way to hold money long term. Little by little inflation destroys its spending power.

Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof , Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller
Published 21 Sep 2015

US Department of Labor, Bureau of Labor Statistics, Tables and Calculators by Subject; Unemployment Rates by Month, http://data.bls.gov/pdq/SurveyOutputServlet. 8. Council of Economic Advisors, Economic Report of the President 2013, table B-73, column 9. 9. The money market funds held almost zero assets in 1980. See graph in “The Future of Money Market Funds,” September 24, 2012, http://www.winthropcm.com/TheFutureofMoneyMarketFunds.pdf. The numbers in this graph accord with data from the Investment Company Institute’s 2014 Fact Book. The data do not include the years 1980 to 1984, but they do show that by 1990 money market fund assets had reached $498 billion. http://www.icifactbook.org/fb_data.html. Last accessed January 1, 2015. 10. Akerlof and Romer, “Looting,” p. 23. 11.

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Goldman Sachs has become an empire.20 Financially, Goldman’s, like the other investment banks, is now a “shadow bank.” A good share of its liabilities is rolled over every night. It takes in “deposits” from large investors with large amounts of liquid assets looking for a haven. Those investors might be commercial banks, money market funds, hedge funds, pension funds, insur ance companies, or other large corporations. Every night they give (we might say “deposit”) literally billions of dollars, with the investment banks’ promise to repay the very next day. This arrangement is known as buying and selling “repos” (repurchase agreements).

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He let interest rates soar; the rate on three-month US Treasury bills, the world’s safest bonds, went to 14 percent in 1981.6 In the fall of 1982 and the spring of 1983 the unemployment rate rose above 10 percent.7 In this war against inflation the country’s S&Ls—quiet, nice banks where people kept their savings, which also financed home purchases—were collateral damage. They had been giving out thirty-year fixed-rate mortgages at 5, 6, 7 percent.8 They needed deposits to back those mortgages. And how were they to meet the competition from the rapidly rising money market funds, which were an alternative convenient place for consumers to store their savings dollars?9 Any economist would say that the S&Ls were bankrupt: not necessarily in the accounting sense—that would depend on the accounting rules—but in the economic sense. The money flowing in from the payments on the S&Ls’ investments (almost entirely in the form of those fixed-rate mortgages) could not meet the money needed to go out to attract the deposits needed to fund those mortgages.10 As a complication, the FSLIC—the Federal Savings and Loan Insurance Corporation, which was the guarantor of the S&L accounts—did not have enough in its trust fund to make up the difference between what the S&Ls had and what they owed.

file:///C:/Documents%20and%...
by vpavan

When you get to the site, click on "interactive tools," and then click on "mutual fund calculator." The calculator allows you to run similar numbers on bond and money market mutual funds, and to plug in any assumptions you wish. Just be careful not to compare apples with oranges, or a low-cost money market fund with a high-cost international stock fund. Here's another trick to help you put mutual fund expenses in context. Don't look at the 1 percent or 2 percent expense ratio in isolation, but rather as a percentage of what you expect your returns to be. Here's an example: If a fund advertises its expense ratio as 1.5 percent, and you are reasonably expecting the fund to return 7.5 percent after one year, the true expense ratio is 20 percent (1.5 divided by 7.5 = 20 percent).

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Once money starts flowing into your 401(k) account, it needs to be managed. You should play an active role in deciding how that is done. Many studies show that workers aren't doing a terribly good job with their 401(k) investments. A recent John Hancock survey offered these scary statistics: Nearly half of 401(k) participants thought stocks are included in money market funds (they aren't). About 80 percent didn't know that the best time to buy bonds is when interest rates fall. One-half expected stocks to average an astounding 20 percent annual return over the next twenty years. Most experts believe that stocks are likely to produce less than half that. Since 1926, stocks have returned 10.7 percent a year, according to Ibbotson Associates, a Chicago-based research firm.

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Not only do you have many more years to make up for any losses, but you also have the luxury of being able to make adjustments in your portfolio. In fact, one of the problems many participants face with their 401(k) accounts is the tendency to invest too conservatively. To avoid the ups and downs of stocks, they are seeking the safety of bonds, slow-growing money market funds, and so-called stable value funds, which invest in guaranteed investment contracts, or securities offered by many insurance companies with a low fixed rate of return. While such fixed-rate investments have a place in your portfolio, you might not have enough money on which to retire if you altogether avoid the higher returns of equities.

The End of Alchemy: Money, Banking and the Future of the Global Economy
by Mervyn King
Published 3 Mar 2016

In the US it became larger in terms of gross assets than the traditional banking sector, especially between 2002 and 2007, largely because it was free of much of the regulation that applied to banks. There is no clear definition of what constitutes ‘shadow banking’, but it clearly includes money market funds – mutual funds that issued liabilities equivalent to demand deposits and invested in short-term debt securities such as US Treasury bills and commercial paper. Money market funds were created in the United States as a way of getting around so-called Regulation Q, which until 2011 limited the interest rates that banks could offer on their accounts. They were an attractive alternative to bank accounts.

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And they lent significant amounts to banks, both directly and indirectly through other intermediaries. It was because they were a significant source of funding for the conventional banking system that the Federal Reserve took action to prevent the failure of money market funds in the autumn of 2008 when, after the failure of Lehman Brothers, concern about the ability of such funds to hold their value led to a run on them.32 In Europe and Japan, money market funds did not grow to the same extent because banks had more freedom to pay interest, and since the crisis, unlike in the US, such funds have had to choose between being regulated as banks or becoming genuine mutual funds with a risk to the capital value of investors’ money.

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Although hardly surprising given the growing appreciation of the system’s underlying fragility over the previous twelve months, the failure of Lehman Brothers was such a jolt to market sentiment that a run on the US banking system took off at extraordinary speed. The runners were not ordinary depositors but wholesale financial institutions, such as money market funds. The run soon spread to other advanced economies – and so the Great Panic began. Already extremely chilly, the financial waters froze solid. Banks around the world found it impossible to finance themselves because no one knew which banks were safe and which weren’t. It was the biggest global financial crisis in history.

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips
Published 31 Mar 2008

“For the last couple of years,” noted Michael Gordon, global head of fixed income at Fidelity International, “everyone seemed so comforted that debt and risk were spread so widely. . . . Now everyone is panicking because they don’t know where it is.”13 That same uncertainty about what had been dispersed to where also fed “contagion.” If CDOs and mortgage-backed securities were radioactive, and some had turned up to great dismay in money market funds run by BNP Paribas in France, then money market funds in general became suspect. By mid-August, the most severe of the contagion problems all but froze the commercial paper market. The Swiss-based and tradition-conscious Bank for International Settlements had issued its cautions in June, and Austrian School economist Kurt Richebächer had been even more damning in earlier warnings.

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Reserve banking, and the Federal Reserve that regulates the system, appear anemic in comparison.21 These pseudomonetary products fit neither of the two current definitions of money employed by Washington—the narrow M1 (essentially cash, traveler’s checks, and checking accounts) and the slightly broader M2 ( M1 plus most savings accounts, retail money market fund balances, and time deposits under $100,000). However, some think that the new moneylike debt instruments overlap with the definition of M3, the broader money supply that formerly reached measurement into the innards of the financial sector. By definition, M3 includes all of M2 plus large time deposits, institutional money market funds, bank repo agreements, and some overseas Eurodollars. This is the money-supply data that the Federal Reserve decided to stop reporting in early 2006.

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The once-sought-after CDOs could no longer be valued or “marked to market,” or even marked to model, the next resort, but only, as skeptics remarked, marked to make-believe, a poisonous perception. Investors heard talk of the possible deleveraging of the global credit bubble—the privately feared “great unwind.” Recession and deflation might be just over the hill. Other financial shivers—trembling municipal bonds, money market funds, and plain vanilla stocks—added to the worst August market chills since the mobilizations of 1914 had shut down bourses on both sides of the Atlantic. (The New York Stock Exchange, closed on July 31, 1914, did not resume full trading for four months.) The 2007 crisis quickly revealed watershed characteristics.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

While the Fed averted a default by AIG, it was too slow to prevent another disaster that unfolded that same Tuesday. The Reserve Primary Fund, the oldest money-market fund in the country, held Lehman paper that was now in default: as a result, a dollar deposited in the Primary Fund was now worth only ninety-seven cents. This was the first time in history that a money-market fund had “broken the buck”—puncturing the myth that money-market accounts were as safe as federally insured bank deposits. Investors who had parked around $3 trillion in money-market funds woke up to the horrifying prospect that their cash might go up in smoke; they rushed to yank their money out, forcing the funds to liquidate their portfolios of Treasury bills and other short-term paper.

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Wealthy Americans could find their way around regulatory constraints, whereas ordinary citizens were helpless.50 Besides, Nixon’s financial reform commission favored deregulation because there was really no choice but to do so. Since 1970, Americans had been pouring savings into money-market funds, which mimicked the properties of bank accounts but which were not subject to Regulation Q.51 If the government kept the regulatory screws on banks and S&Ls, capital would migrate to these money-market funds; and if the government responded by extending interest-rate caps to the funds, capital would migrate to Europe. Already, a booming trade in dollar-denominated bonds had sprung up in London, and if the government tried to regulate onshore credit markets more aggressively, Europe would gobble up more of the business.

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Finance did change in the 1970s, but it was shaped not by the deliberate planning of an expert commission but by market pressures and crises. The fact that Greenspan and his fellow commissioners proposed to phase out Regulation Q did not matter in the end; Regulation Q was neutered anyway as savings flooded into the new money-market funds, as unregulated dollar bonds multiplied in London, and as the Fed dealt with the panic following Penn Central by scrapping the Regulation Q cap on the interest that banks could pay to attract very large deposits. The pattern was the same in later years. Finance changed dramatically in the 1990s and early 2000s, but the change was not dictated by the deliberations of experts; earnest working committees pondered the meaning of the new swaps market or the rise of shadow banks, but Greenspan declined to throw his weight behind their ideas, and their findings failed to alter policy.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

A more likely reason is that Mr Paulson believed (wrongly, as it turned out) that the markets would take Lehman’s failure in their stride, but was sure the same would not be true for AIG, given its role as a seller of ‘credit default swaps’ – insurance contracts on bonds, including the securitized assets that had become increasingly toxic. Then, on 17 September, one of the money-market funds managed by Reserve Management Corporation (a manager of mutual funds) ‘broke the buck’ – that is, could no longer promise to redeem money invested in the fund at par (or dollar for dollar) – because of its exposure to loss-making loans to Lehman. That threatened a tsunami of redemptions from the $3.5tn invested in money-market funds, a crucial element in funding McCulley’s ‘Shadow Banking System’.19 PriceWaterhouseCoopers, the UK’s bankruptcy administrator for Lehman, seized the failed company’s assets in the UK, including the collateral of those who traded with it.20 This came as a shock to many hedge funds and US policymakers.

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Worse, conventional banks were also implicated in central aspects of shadow banking, the creation of – and trading in – complex securities and borrowing in short-term, collateralized debt markets, which replaced conventional bank deposits for many big lenders. As is true of most revolutionary systems, the implications of shadow banking were widely misunderstood. It created new forms of non-deposit near-money – notably, money-market funds, predominantly held by households, which financed supposedly safe short-term securities, and repos (repurchase agreements), a form of secured lending by corporate treasurers to investment banks and the investment-banking operations of universal banks (banks that provide both retail and investment-banking services).35 It allowed companies increasingly to issue commercial paper instead of relying on conventional bank loans.

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It is easy, after all, for banks to hold on to the deposits they need to fund their expanded lending, precisely because of the public confidence generated by the support provided to banks by the government and central bank. Banks are explicitly part of the government’s monetary system. Of course, once the Federal Reserve offered equivalent support to money-market funds in September 2008, the latter came to have much the same characteristics as banks. What then stops the bank-led financial system from expanding credit and money without limit? The obvious answer would be that it would stop when participants ran out of profitable opportunities. But this is not a convincing answer if the activities of the hyperactive intermediaries in aggregate create the perceived opportunities: credit growth breeds asset-price bubbles that in turn breed credit growth.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover
by Katrina Vanden Heuvel and William Greider
Published 9 Jan 2009

The crisis has even hit the previously staid world of money market mutual funds, where the fainthearted once could park their savings safely in exchange for low returns. Money market fund holders have been panic-selling since mid-September, dumping $500 billion worth of these accounts. To stanch a money market fund collapse, Bernanke announced on October 21 that, on top of the Paulson bailout plan, the Fed stands ready to purchase $540 billion in certificates of deposit and private business loans from the money market funds. This action is in addition to two previous initiatives committing the Fed to buy up, as needed, business loans from failing banks.

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Now desperate, the Men in Black switched back to their old tactics and rescued AIG, but the damage had been done. The aliens had learned from Lehman and AIG how vulnerable Wall Street really was. Soon interbank markets everywhere in the world locked up. With financiers preferring treasuries that paid essentially nothing to every other asset in the world, huge runs started on money market funds. In response, the Men in Black have now gone to Congress. They have put a check for $700 billion and a loaded gun on the table. Sign the check, they insist, and give us unreviewable power to buy bad assets, or take responsibility for the collapse of the whole financial system and, likely, the world economy.

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In sum, the less that is bought, the lower the demand for goods and services and the only thing that goes up on the graphs is unemployment. As the construction industries, among our largest employers, go down the toilet, unemployment rises. Fear—Franklin D. Roosevelt’s nameless, unreasoning, un-justified terror—is also at work here. It is driving countless people to take what money they have left out of money market funds, cash in stocks at a loss and withdraw money from savings accounts to put it in government notes which, for practical purposes, pay no interest. Money stuck away in government notes and bonds is unproductive money, money that will not be spent to generate wealth. Stagnant money makes for a scum-pond economy and fewer jobs.

Jared Bibler
by Iceland's Secret The Untold Story of the World's Biggest Con-Harriman House (2021)

During my few days there, I dutifully visit the machine each day and withdraw the max. Notes 18 Each bank was surrounded by a satellite system of investment companies that bought up junk assets from the bank. These investment companies were financed by commercial paper that the banks purchased into their own money market funds. Many Icelanders, including us, invested in these supposedly safe money market funds. They were marketed as safe investments for retail clients, as good as a savings account. Customer service reps at the banks, like Hulda had been when I met her, were even offered bonuses for getting average Icelanders to move their savings into these funds.

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In the famous words of Jim Cramer, I was still thinking “like an academic” in the weeks before the crisis. Feeling vindicated that my doubts about the Icelandic economy were going to be proven right. But when the crisis came, that feeling lasted all of an hour. Because this was hitting us all where it hurt: in our pay stubs and bank accounts. Nearly all of our savings is sitting in a Landsbanki money market fund called Penigabréf. The name translates as ‘money brief’, signifying with as literal a name as possible a piece of paper that can be redeemed for money. But in this case it’s been deemed unredeemable. The bank has frozen all the shares of this massive money market, the largest in the Land, without giving a date for when it will reopen access.

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The fact that our senior managers were doing everything to prevent a run on this supposedly safe investment made me realize, too late, that it might not be so safe at all. In the end, the investors in both funds, but especially the currency fund, are forced to eat huge and completely avoidable losses as a result of this attempt to prop up the bank’s own junk. It turns out that the Peningabréf was so full of bad debt that the managers who ran this massive money market fund maintained two sets of accounting books: one the value they showed to the public, and the second the fair market value, a far lower number.18 The week of the collapse I had ordered up some euro to pay a friend for some sports equipment he’d ordered for me from offshore. But the transfer from Icelandic króna to euro, something that would normally clear in milliseconds, is frozen seemingly mid-Landsbanki collapse.

The Great Reversal: How America Gave Up on Free Markets
by Thomas Philippon
Published 29 Oct 2019

That’s why bank deposits are insured, and that’s why banks pay insurance premia to the Federal Deposit Insurance Corporation (FDIC). The money market fund industry wanted to attract savings away from the banks—which is totally fair, that’s just competition—and they knew that people loved the idea of fixed, safe, dollar-for-dollar deposits. They then decided to report fixed NAVs, pricing their shares at $1 at all times, to make it look like they were offering deposits. But they were not investing in safe, short-term government bills. In September 2008, the Reserve Primary Money Market Fund (a large money market fund) “broke the buck” (that is, admitted that the value of its shares was less than $1) because it had invested in Lehman Brothers commercial paper.

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Why are we spending more on financial intermediation today than 100 years ago? To answer that question, let us construct the amount of intermediation. For the corporate sector, we need to look at stocks and bonds, and for stocks, we want to distinguish between seasoned offerings and IPOs. We also need to look at the liquidity benefits of deposits and money market funds. The principle is to measure the instruments on the balance sheets of nonfinancial users, households, and nonfinancial firms. This is the correct way to do the accounting, rather than looking at the balance sheet of financial intermediaries. After aggregating the various types of credit, equity issuances, and liquid assets into one measure, I obtain the quantity of financial assets intermediated by the financial sector for the nonfinancial sector, displayed as the shaded line in Figure 11.2.

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In September 2008, the Reserve Primary Money Market Fund (a large money market fund) “broke the buck” (that is, admitted that the value of its shares was less than $1) because it had invested in Lehman Brothers commercial paper. Lehman declared bankruptcy and the Reserve Fund posted a loss, triggering a run as investors pulled their money out to avoid further losses. The fund was forced to freeze redemptions and the US Treasury Department had to create a temporary guarantee program for the entire money market fund industry! So much for a safe investment … After the crisis, regulators proposed a set of reforms to force funds to float the NAV of their portfolios and avoid the illusion of safety. It did not go well. The industry fought back, and it took years to arrive at a mediocre compromise. My point here is that implementing these regulations would have been a relatively straightforward process when the industry was small, and they would have guided market evolution and encouraged innovations consistent with sound principles of finance.

Money Free and Unfree
by George A. Selgin
Published 14 Jun 2017

Wallison’s statement should be amended to allow for the fact that, on the Tuesday following Lehman’s Monday bankruptcy filing, the Reserve Primary money market mutual fund, having written off its large holdings of unsecured Lehman paper (and having lacked sponsors capable of making up for the loss), had to reduce its share price below the pledged $1 level to 97 cents. Reserve Primary’s “breaking the buck” led to several days of large redemptions from other (especially institutional) prime money market funds and, thereby, to a sharp drop in the demand for commercial paper. Significantly, government money market funds, including Treasury-only funds, experienced inflows; and it is possible that the redemptions would have subsided on their own as it became clear that most funds would remain able to meet all redemption requests at $1 per share. The Treasury nevertheless intervened on Friday to guarantee all money-market share prices at $1.39 In deciding not to rescue Lehman Brothers, the Fed abided by the classical rules of last-resort lending.

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As David Tarr (2009: 5) notes, the same conclusion was reached by the international Senior Supervisory Group (SSG), which reported as well that the failures of Fannie May and Freddie Mac “were managed in an orderly fashion, with no major operational disruptions or liquidity problems.” On the success of chapter 11 as a means for resolving Lehman Brothers, see Christopher Whalen (2009). 39. According to Naohiko Baba and colleagues (2009: 76), although they benefited from neither the U.S. Treasury guarantee or the Fed’s money market fund liquidity facility established on the same day, “European-domiciled dollar [money market funds] generally experienced runs not much worse than those on similar U.S. prime institutions with the same manager.” 40. Wallison (2009: 3) writes that although Goldman Sachs was AIG’s largest CDS counterparty, with contracts valued at $12.9 billion, a spokesman for Goldman declared that, had AIG been allowed to fail, the consequences for Goldman “would have been negligible.” 41.

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A simple way to accomplish that end, while further limiting the Fed’s risk exposure and guarding against adverse selection, would be to open participation to any financial institution with a CAMEL score of 1 or 2.7 Such a broadening of Fed counterparties would, as Hoenig (2011: 9) observes, also “enable nearly all banks to play a role in the conduct of monetary policy,” leveling the credit-allocation playing field while simultaneously making the largest banks considerably less systematically important. Since the crisis, the Fed has agreed to have several new counterparties, including a number of money market funds, take part in reverse repos that it eventually intends to employ in mopping up excess base money; but it has not otherwise departed from its traditional primary-dealer-based operating framework.8 Although counterparty diversification might itself limit clearing banks’ exposure to risk in connection with the Fed’s repo operations, the clearing banks would still be heavily exposed to any primary dealer failure, and could consequently remain “hotspots for systemic risk” and for potential Fed operating system failure, through their involvement in the private repo market (Tuckman 2010).

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

By the way, most banks offer money market deposit accounts, which are not the same as money market funds. These are like savings accounts where the banks are allowed to invest your money in short-term debt, and they pay you a slightly better interest rate in return. There’s usually a minimum deposit required or other restrictions, low rates, and penalties if your balance falls too low. But they are insured by the FDIC, which is a good thing. And that sets them apart from money market funds, which are not guaranteed and could potentially drop in value. But if you want to keep your money safe, liquid, and earning interest, one option is a US Treasury money market fund with checking privileges.

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You also may want to keep some of that cash in a safe place or for safety near your home—you know, “under your mattress”—in a hidden safe in case there’s an earthquake or hurricane or some other kind of emergency, and the ATMs stop working. Other tools for cash equivalents include money market funds—there are three types, and if you want to learn more, see the box for details. For larger amounts of money that we need to keep safe and liquid, you can buy into ultra-short-term investments called cash equivalents. The most well-known are good old money market funds. You may even already own one. These are basically mutual funds made up of low-risk, extremely short-term bonds and other kinds of debt (which you’ll learn more about in a moment).

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In his study for the Department of Labor, conducted with two other professors, one of whom was trained by two Nobel laureates, Babbel compared TDFs to stable value funds. Stable value funds are ultraconservative, “don’t have losses and historically have yields [returns] at two percent to three percent greater than money market funds.” According to Babbel, the industry-sponsored study, which painted TDFs in the best possible light, was riddled with flaws. To make TDFs look better than stable value funds, they pumped out more fiction than Walt Disney. For example, they made an assumption that stocks and bonds have no correlation.

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
by Richard Bookstaber
Published 1 May 2017

But at this point, a whiff of mortgage exposure was enough. With funding already restricted in the repo market by higher margins and demands for higher-quality collateral, with the ABCP market seizing up and SIVs dead in the water, the fall of 2007 reached a panic point when money market funds started to face problems. SIVs were a particular issue here, because these were held widely by money market funds. The money market funds were a prime source of the raw material—they were the ultimate cash provider—that found its way through the SIVs and other instruments. Another funding source that got clobbered came through trouble with monoline insurers.

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If we are going to look at financial crises, the first step is to recognize that we have a specific financial system with real institutions, organized in a defined way. There are banks like JP Morgan Chase (JPM) and Citi, hedge funds like Citadel and Bridgewater, security lenders, asset managers, pension funds, money market funds. Each one interacts with others; some are sources of funding, others use funding; some are intermediaries and market makers; some act as conduits for collateral, others take on counterparty risk. Each one takes actions based on the world around it, based on its business interests and operational culture, and how it acts—these are big enough institutions that what they do has consequences for the system—in turn changes the environment and affects how others act.

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E. Shaw. There are several thousand hedge funds in total, though fewer than one hundred of any note. Cash Providers. Cash providers are agents that include asset managers, pension funds, insurance companies, securities lenders (who receive cash from lending securities), and, most important, money market funds. The cash providers fuel the financial system. Without funding, the system—or any part of the system that does not have funding—comes to a halt in as little as a day. The collateral passes from the borrowers to the cash providers, usually with the bank/dealer as an intermediary. Securities Lenders.

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves
by Andrew Ross Sorkin
Published 15 Oct 2009

But as he passed the South Street Seaport and then under the Brooklyn Bridge, he had inadvertently begun thinking about what fresh hell the day would bring. He was most anxious about the latest shocking development: A giant money market fund, Reserve Primary Fund, had broken the buck a day earlier (which meant that the value of the fund’s assets had fallen to below a dollar per share—in this case, 97 cents). Money market funds were never supposed to do that; they were one of the least risky investments available, providing investors with minuscule returns in exchange for total security. But the Reserve Primary Fund had chased a higher yield—a 4.04 percent annual return, the highest in the industry—by making risky bets, including $785 million in Lehman paper.

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CHAPTER EIGHTEEN Hoarse and a little haggard, Paulson made his way to the podium in the press room of the Treasury Building the morning of Friday, September 19, 2008, to formally announce and clarify what he had dubbed earlier that morning the Troubled Asset Relief Program, soon known as TARP, a vast series of guarantees and outright purchases of “the illiquid assets that are weighing down our financial system and threatening our economy.” He also announced an expansive plan to guarantee all money market funds in the nation for the next year, hoping that that move would keep investors from fleeing them. But he had already gotten an earful that morning about that effort from Sheila Bair, chairwoman of the FDIC, who had called, furious she wasn’t consulted and anxious that the guarantee plan would backfire and investors would perversely start moving their money out of otherwise healthy banks and into the guaranteed money market funds. Paulson just shook his head; he couldn’t win. As he stood in front of the press corps he did his best to sell the centerpiece of his plan, the TARP.

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The group took their seats, and as each of the speakers rose to talk, the perilous state of the economy became ever clearer. The credit crisis wasn’t just a U.S. problem; it had spread globally. Mario Draghi, Italy’s central bank governor and a former partner at Goldman Sachs, spoke candidly of his worries about global money-market funds. Jean-Claude Trichet told the audience that they needed to come up with common requirements for capital ratios—the amount of money a firm needed to keep on hand compared to the amount it could lend—and, more important, leverage and liquidity standards, which he thought were much more telling indicators of a firm’s ability to withstand a “run on the bank.”

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

This vast accumulated wealth of households fell into two large buckets: First, tangible assets of $28 trillion, including over $21 trillion in real estate and $4 trillion in durable goods like cars; and second, financial assets of $50 trillion. Of these, only about $7 trillion was ‘‘money in the bank’’ such as in checking and savings accounts or money market funds. Most household financial assets are what are called ‘‘market instruments.’’ These will be described in detail in the next chapter, but in general, a market instrument is either an IOU for borrowed money or an ownership share in a corporation. In other A Tour of the Financial World and Its Inhabitants words, what we know as bonds and stocks.

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YOUR PENSION FEEDS THE MARKET At the end of 2007, U.S. households had about $6 trillion in the bank, mostly in various types of savings accounts. However, the actual reserves (that is, real money, not just promises) for pension funds was $13 trillion. Households also held $5 trillion in mutual funds and another $1.4 trillion in money market funds. Their life insurance policies held another $1.2 trillion in reserves. The ‘‘buy side’’ is huge, and for a very good reason. The only way anyone can continue to have an income after they stop working is to put aside money today that they can use later in life. If the average person needs $40,000 a year to live in retirement and will on average live twenty years, that means that they need $800,000 over that period.

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Asset securitization is what allowed the great credit bubble of recent decades to inflate and then collapse, with asset securitization causing the bubble to pop and tank the real economy in the process. Commercial paper was an essential ingredient in the whole witches brew, as we will see later. Who bought all these naked IOUs? The short answer is that you did. Money market funds, which so many of us used to get higher returns on our savings, were among the biggest buyers of CP. The riskier the CP issuer, the higher the rate they paid us. Nobody questioned this when times were good. BONDS If you watch the TV money shows, you will see how much drama surrounds the trading floor the New York Stock Exchange.

Tech Titans of China: How China's Tech Sector Is Challenging the World by Innovating Faster, Working Harder, and Going Global
by Rebecca Fannin
Published 2 Sep 2019

Shortly after Alibaba scored its mega IPO in New York in 2014, Alipay’s financial services business was rebranded Ant Financial in a new push into financial services, and then in 2018, Alibaba crawled back in, buying a 33 percent stake in Ant Financial. Alibaba’s fintech affiliate is shaking up the financial sector with internet technology and big data for wealth management, mobile payments, insurance, microloans, money market funds, and blockchain for cryptocurrencies. Its money market fund, Yu’e Bao, promising returns of more than 4 percent, became the world’s largest fund in just four years after its 2013 launch, with $211 billion in assets and 370 million account holders, who needed only 15 cents to open an account. The fund’s assets have since downsized to $168 billion following pressure by Chinese regulators and concerns of systemic liquidity risks to the entire banking market.10 Ant Financial made big news again when it hauled in the largest-ever single fund-raising by a private company: an eye-popping $14 billion investment in 2018 at a valuation of about $150 billion from US private equity firms Carlyle Group, Silver Lake Partners, Warburg Pincus, and General Atlantic, as well as Singaporean sovereign wealth fund GIC.

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•Mobile payments: China today is a cashless society. China’s mobile payments market led by WeChat Pay and Alipay already exceeds US credit and debit card usage. •Fintech: Alibaba affiliate Ant Financial is a one-stop financial services giant that uses big data and machine learning to dominate in money market funds, lending, insurance, mobile payments, wealth management, and blockchain services. •Social credit: China’s new, controversial social credit system judges a citizen’s trustworthiness through technological surveillance and encourages compliance by giving ratings that can determine access to loans, jobs, schools, and travel.

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Elsewhere, Xiaomi is playing catch-up to Samsung’s lead in the large Indonesian market and has become among the top five smartphone brands in Russia, Greece, Egypt, Poland, Bulgaria, Czech Republic, and Kazakhstan as well as several markets in Asia. What’s next for Xiaomi? It’s getting into fintech. A new subsidiary, Xiaomi Finance, under the leadership of Xiaomi engineering cofounder Hong Feng is leveraging the company’s data to offer microloans, money transfers, bill payments, internet banking, a money market fund, and financial services for small companies in its supply chain. Xiaomi is preinstalling these financial services into its smartphones. It’s also investing in Indian lending startups. These moves plant Xiaomi within the turf of Alibaba and Tencent. Whether it’s too much of a stretch to compete in a brand-new field and against the original tech titans is a valid question.

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

In September 1998 global capital markets were hours away from total collapse before the completion of a $4 billion, all-cash bailout of the hedge fund Long-Term Capital Management, orchestrated by the Federal Reserve Bank of New York. In October 2008 global capital markets were days away from the sequential collapse of most major banks when Congress enacted the TARP bailout, while the Fed and Treasury intervened to guarantee money-market funds, prop up AIG, and provide trillions of dollars in market liquidity. In neither panic did the Fed’s imaginary bargain hunters show up to save the day. In short, the Treasury and Fed view of financial warfare exhibits what intelligence analysts call mirror imaging. They assume that since the United States would not launch a financial attack on China, China would not launch an attack on the United States.

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This caused Korea to cut interest rates to cheapen its currency, and so on around the world, in a blur of rate cuts, money printing, imported inflation, and knock-on effects triggered by Fed manipulation of the world’s reserve currency. The result is not effective policy; the result is global confusion. The Federal Reserve defends its market interventions as necessary to overcome market dysfunctions such as those witnessed in 2008 when liquidity evaporated and confidence in money market-funds collapsed. Of course, it is also true that the 2008 liquidity crisis was itself the product of earlier Fed policy blunders starting in 2002. While the Fed is focused on the intended effects of its policies, it seems to have little regard for the unintended ones. ■ The Asymmetric Market In the Fed’s view, the most important part of its program to mitigate fear in markets is communications policy, also called “forward guidance,” through which the Fed seeks to amplify easing’s impact by promising it will continue for sustained periods of time, or until certain unemployment and inflation targets are reached.

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Indeed, capital inflows from China provided support for the euro—an example of a positive feedback loop between a sound currency and capital flows. Increasing capital inflows to the Eurozone were not limited to those coming from China. The U.S. money-market industry has also been investing heavily in the Eurozone. After panicked outflows in 2011, the ten largest money-market funds in the United States almost doubled their investments in the Eurozone between the summer of 2012 and early 2013. The Berlin Consensus is taking root in Europe, based on the seven pillars and directed as much from the EU in Brussels as from Berlin, to mitigate resentment of Germany’s economic dominance.

Fault Lines: How Hidden Fractures Still Threaten the World Economy
by Raghuram Rajan
Published 24 May 2010

Put differently, with implicit government guarantees all over the place, should we not strive to remove explicit government guarantees where we can? One reason for insuring deposits was to provide a safe means of savings to households where none existed. Today, this rationale is archaic—a money-market fund invested in Treasury bills can provide that safety. A well-diversified money-market fund invested in highly rated commercial paper and marked every day to market is almost as safe and should not experience the kinds of runs experienced by funds that were not marked to market during this crisis.20 Another important reason for insuring deposits was to ensure that the payment system would be relatively safe: unregulated, unsafe, uninsured entities could not pollute it and cause the system to freeze.

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Stein, “Rethinking Capital Regulation,” paper prepared for the Federal Reserve Bank of Kansas City symposium “Maintaining Stability in a Changing Financial System,” Jackson Hole, WY, August 21–23, 2008. 16 See Aaron Wildavsky, Searching for Safety (New Brunswick, NJ: Transaction Books, 1988). 17 See Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, “Perspectives on the Recent Financial Market Turmoil,” speech at the 2008 Institute of International Finance Membership Meeting, Rio de Janeiro, Brazil, March 5, 2008. 18 See, for example, the proposed House Financial Regulatory Reform Bill of 2009. 19 See Sorkin, Too Big to Fail, 490. 20 Prime Reserves, a money-market fund, suffered losses on its Lehman debt holdings after the Lehman collapse. Because it paid out $1 for every dollar invested instead of the $0.97 or so that the investments were now worth, investors rushed to the exit to avoid being forced to bear the losses. If the fund had marked its assets to market and paid out only $0.97, there would have been less of a panic. Again, in a crisis, perhaps no asset is safe without a government guarantee, including money-market funds that are invested in anything other than Treasury bills. 21 I thank Viral Acharya for suggesting this term. 22 Louis D.

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See health care; physicians medical malpractice Medicare Merrill Lynch Mexico: conditional cash transfers financial crisis of Mian, Atif microcredit middle class migration mobility: economic factors restricting of workers models, economic Mohamad, Mahathir monetary policy: credit expansion and financial stability and housing market and improvements in Japanese Keynesian lags in political influences on reforms of of United States, See also central banks; interest rates money-market funds moral hazard Morgan, J. P., See also JP Morgan Morrice, Brad mortgage-backed securities: credit risk of Fannie Mae and Freddie Mac issues federal purchases of held by banks investors in ratings of risks of, subprime mortgages in tail risks of tranches of mortgage brokers mortgage insurance mortgages: defaults on deregulation of thrift industry FHA foreclosures of historical evolution of interest rates on predatory lending traditional lending process for, See also subprime mortgage market motivations multilateral financial institutions: influence of lending by reforms of See also International Monetary Fund; World Bank mutual fund management companies national home ownership strategy, See also home ownership nationalism Nehru, Jawaharlal New Century Financial New Deal New York City No Child Left Behind Act of noncognitive skills Northern Rock Obama, Barack Obama administration Office of Thrift Supervision O’Neal, Stanley opportunities organizational capital ownership society, See also home ownership Park Chung Hee Paulson, Henry J.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
by Robin Wigglesworth
Published 11 Oct 2021

It didn’t cross the $100 million mark until the end of 1981—and that was only after merging it with another $58 million fund.21 Bogle would often describe his index fund as “an artistic, if not commercial, success.”22 In the subsequent years, Vanguard depended far more on the success of a money market fund introduced in 1975. Money market funds invest in short-term, high-quality debt, such as US Treasury bills or commercial paper issued by the likes of IBM or General Electric, typically maturing in less than nine months. Their popularity soared as the Federal Reserve jacked up interest rates in the 1970s to finally stamp out the inflation that had plagued the US economy for decades. This helped counteract the seeping outflows from struggling equity mutual funds. By the end of 1981, Vanguard’s money market funds—managed by Wellington—managed $1.4 billion, roughly 40 percent of the company’s overall assets.

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“That decision was significant, because it set in motion the possibility that Vanguard would be restructuring itself and making its own decisions,” according to Phil Fina, one of Vanguard’s attorney’s at the time.26 Indeed, Bogle’s next gambit was to seize the final, third piece of the loaf of investment management. In 1980, the Vanguard board was discussing stripping Citi of its mandate to manage Warwick due to its poor performance. Pouncing on the opportunity, Bogle proposed that Vanguard set up its own internal fixed-income group that would manage both the municipal bond funds and also the money market funds managed by Wellington Management Company. After all, Vanguard’s at-cost business model made it perfect for the task of managing lower-returning, steadier income funds like that at a much lower cost to investors, he reasoned.27 By this time, Doran and Thorndike had both left the board, and in September 1980 the directors almost unanimously blessed the proposal.* Finally, Vanguard was no longer a mere clerical outfit, a symbolic sop by a sympathetic board to an ousted chief executive, but a full-service investment company in its own right.

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The last decade has seen rampant growth, with index funds—whether passive mutual funds or exchange-traded funds—gobbling up more and more of the investment industry’s market share. Index funds come in many flavors, from exchange-traded notes that track the price of oil to passive money market funds. Equity index funds are by far the biggest, but bond index funds have been growing quickly in recent years and are expected to take off further in the coming decade. ACKNOWLEDGMENTS THIS BOOK MAY HAVE ONLY one author, but in reality it represents the work of a multitude, whether they know it or not.

Principles of Corporate Finance
by Richard A. Brealey , Stewart C. Myers and Franklin Allen
Published 15 Feb 2014

Most mutual funds invest in shares or in a mixture of shares and bonds. However, one particular type of mutual fund, called a money-market fund, invests only in short-term safe securities, such as Treasury bills or bank certificates of deposit. Money-market funds offer individuals and small- and medium-sized businesses a convenient home in which to park their spare cash. There are about 1,000 money-market funds in the United States. Some of these funds are huge. For example, the JP Morgan Prime Money Market Fund has over $100 billion in assets. Mutual funds are open-end funds—they stand ready to issue new shares and to buy back existing shares.

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Interest-rate regulation provided financial institutions with an opportunity to create value by offering money-market funds. These are mutual funds invested in Treasury bills, commercial paper, and other high-grade, short-term debt instruments. Any saver with a few thousand dollars to invest can gain access to these instruments through a money-market fund and can withdraw money at any time by writing a check against his or her fund balance. Thus the fund resembles a checking or savings account that pays close to market interest rates. These money-market funds have become enormously popular. By 2011 their assets were $2.6 trillion.8 Long before interest-rate ceilings were finally removed, most of the gains had gone out of issuing the new securities to individual investors.

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Most large corporations manage their own money-market investments, but small companies sometimes find it more convenient to hire a professional investment management firm or to put their cash into a money-market fund. This is a mutual fund that invests only in low-risk, short-term securities.16 Despite its large cash surplus, Apple invested a small proportion of its money in money-market funds. The relative safety of money-market funds has made them particularly popular at times of financial stress. During the credit crunch of 2008 fund assets mushroomed as investors fled from plunging stock markets. Then it was revealed that one fund, the Reserve Primary Fund, had incurred heavy losses on its holdings of Lehman Brothers’ commercial paper.

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future
by Andy Bell
Published 12 Sep 2013

Corporate bonds are generally perceived as being less risky than equities, and investing in corporate bonds through a corporate bond fund reduces your overall risk. Capital protection Funds in the capital protection grouping of IMA sectors include money market or cash funds and funds offering capital protection by locking in gains, or guaranteeing capital and linking returns to an index. Some people refer to money market funds as cash funds, which is not strictly correct. Money market funds invest in cash, bonds with only a short term to maturity and other ‘debt instruments’. There is some capital risk to these funds. Specialist The IMA’s specialist sector grouping covers a range of sectors that do not fall into any of the others. Funds investing in specialist sectors, such as Technology & Telecommunications and Property, fall into this category.

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The Isle of Man’s bank deposit guarantee scheme compensated investors up to 100 per cent of the first £30,000 and then 90 per cent of the next £20,000 of deposits, up to a maximum of £48,000. Cash funds Cash funds are pooled investments run by fund managers who invest in ‘cash-like’ assets with the very loose aim of giving ‘attractive’ returns with a high level of security. They are also called money market funds. These funds have come under scrutiny from the FSA in recent years because the assets they have invested in have, in some cases, not reflected the risk profile of cash. Some have also suffered from negative yields. Cash funds are usually far less volatile than equity or bond funds but they still carry risks, and can post negative returns in times of exceptional market volatility.

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Appendix Annuity factors for capped drawdown Source: Government Actuary’s Department Index AER (annual equivalent rate) Alternative Investment Market (AIM), 2nd, 3rd, 4th, 5th, 6th, 7th annuities, 2nd, 3rd, 4th, 5th, 6th guaranteed annuity rates income drawdown or lifetime, 2nd tax asset allocation, 2nd, 3rd, 4th bankruptcy banks, 2nd, 3rd, 4th bank accounts see cash fixed-rate bonds, 2nd, 3rd Bed and breakfast, 2nd Bed and ISA, 2nd Bed and SIPP Bed and spouse bonds see corporate bonds and gilts borrowing, 2nd, 3rd building societies accounts see cash fixed-rate bonds, 2nd, 3rd PIBS, 2nd buyer beware, 2nd Canadian shares capital gains tax, 2nd annual exemption, 2nd, 3rd, 4th, 5th, 6th, 7th Bed and breakfast, 2nd Bed and ISA, 2nd Bed and SIPP Bed and spouse corporate bonds Dealing Account, 2nd death equities, 2nd ETFs, 2nd exempt assets, 2nd funds, 2nd gifts to spouse or civil partner, 2nd, 3rd gilts investment trusts, 2nd ISAs, 2nd, 3rd, 4th, 5th, 6th losses, 2nd, 3rd, 4th rates of, 2nd, 3rd SIPPs, 2nd, 3rd, 4th, 5th takeovers venture capital trusts capital protection funds cash, 2nd, 3rd, 4th, 5th best-buy savings accounts bonus rates cash/money market funds, 2nd, 3rd inflation risk, 2nd investment platforms, 2nd, 3rd, 4th, 5th, 6th ISAs, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th merged banks and building societies, 2nd NS&I, 2nd overseas banks security of cash accounts, 2nd caveat emptor (buyer beware), 2nd charges and costs Bed and ISA bond funds bonds, retail corporate cash funds comparison sites: pricing of platforms, 2nd equities, 2nd, 3rd, 4th ETFs, 2nd, 3rd, 4th funds see charges under funds investment trusts, 2nd, 3rd ISAs, 2nd, 3rd, 4th, 5th Level 2 market data re-registration, 2nd SIPPs, 2nd, 3rd, 4th stakeholder pensions tracker funds children civil partner, 2nd, 3rd, 4th gifts to, 2nd, 3rd closed-end funds, 2nd investment trusts see separate entry commercial property, 2nd, 3rd, 4th SIPPs, 2nd, 3rd company pension schemes, 2nd final or career average salary scheme, 2nd, 3rd contracts for difference (CFDs) corporate bonds and gilts, 2nd, 3rd, 4th, 5th, 6th, 7th funds, 2nd, 3rd, 4th, 5th gilts, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th history of mechanics of buying, holding and selling research, 2nd risks of bonds and impact on value, 2nd, 3rd tax, 2nd terminology costs see charges and costs Crown employees, 2nd currency risk, 2nd de-rampers Dealing Account, 2nd, 3rd, 4th Bed and breakfast Bed and ISA, 2nd Bed and SIPP charges investment platforms, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th joint names tax, 2nd, 3rd what you can invest in, 2nd, 3rd, 4th workings of death annuities, 2nd SIPPs, 2nd tax, 2nd defined benefits/final salary schemes, 2nd, 3rd defined contribution/money purchase schemes company scheme SIPP see separate entry diary notes, 2nd directors’ share purchases and sales discount brokers, 2nd diversification, 2nd, 3rd dividends, 2nd, 3rd, 4th, 5th dividend yield ratio, 2nd investment trusts payout ratio reinvesting, 2nd, 3rd, 4th, 5th, 6th tax, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th divorce double taxation agreements, 2nd DYOR (Do Your Own Research) efficient market hypothesis emerging markets, 2nd, 3rd, 4th, 5th, 6th, 7th emigration emotional investing, avoiding, 2nd employment contracts EMS (exchange market size), 2nd enterprise investment schemes (EISs), 2nd, 3rd equities, 2nd, 3rd, 4th, 5th AIM-listed, 2nd, 3rd, 4th, 5th, 6th, 7th charges, 2nd, 3rd, 4th convertibles dividends, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th exchange market size (EMS) financial ratios, 2nd, 3rd FTSE 100, 2nd, 3rd FTSE 250/mid-cap stocks FTSE 350 FTSE SmallCap history of Level 2 market data, 2nd liquidity, 2nd, 3rd open offer ordinary shares overseas markets, 2nd, 3rd preference shares, 2nd price, 2nd research, 2nd, 3rd, 4th rights issues risks of settlement period shareholder perks, 2nd spreads, 2nd stop loss and limit orders takeover tax, 2nd, 3rd, 4th, 5th tips in financial press, 2nd, 3rd, 4th types who’s who is trading process ethical investor ex-dividend date exchange market size (EMS), 2nd exchange-traded funds (ETFs), 2nd, 3rd, 4th, 5th, 6th, 7th costs and charges, 2nd, 3rd, 4th default history of major players mechanics of buying and selling ‘reporting status’ risks tax, 2nd websites exchange-traded products (ETPs), 2nd, 3rd ETFs see exchange-traded funds executive pension plans, 2nd exit charges: ISAs final or career average salary schemes, 2nd, 3rd financial advisers, 2nd, 3rd, 4th, 5th, 6th, 7th Financial Conduct Authority (FCA) financial crisis, 2nd Financial Ombudsman Service financial ratios, 2nd, 3rd, 4th Financial Services Compensation Scheme (FSCS), 2nd, 3rd, 4th, 5th France, 2nd FTSE 100, 2nd, 3rd FTSE 250/mid-cap stocks FTSE 350 FTSE SmallCap fund supermarkets, 2nd funds, 2nd, 3rd, 4th changes to structure of charges and costs, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th ‘clean’ and ‘dirty’ share classes, 2nd, 3rd, 4th, 5th, 6th, 7th conversions, share class fraud history information overload insolvency of fund manager mechanics of buying, holding and selling money market/cash, 2nd, 3rd multi-manager negligence OEICs, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th, 16th passive or active management performance fees RDR, 2nd, 3rd, 4th, 5th, 6th, 7th sectors share classes, 2nd, 3rd, 4th, 5th, 6th, 7th soft-closing star fund managers, 2nd, 3rd tax, 2nd, 3rd, 4th types of unit trusts, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th valuation point, 2nd websites, 2nd, 3rd see also tracker funds Funds & Shares Account see Dealing Account gearing/borrowing, 2nd, 3rd General Investment Account (GIA) see Dealing Account Germany gilts/government bonds see corporate bonds and gilts Google alerts gross rate (interest) group personal pension schemes growth funds guaranteed annuity rates holiday homes, 2nd hyperbolic discounting incapacity/serious ill-heath and SIPPs income drawdown from SIPPs, 2nd, 3rd, 4th capped, 2nd, 3rd flexible, 2nd, 3rd, 4th, 5th income funds income tax bonds and gilts dividends, 2nd, 3rd, 4th, 5th EISs, 2nd funds gifts to spouse or civil partner interest income, 2nd, 3rd investment trusts, 2nd onshore life insurance investment bonds pension income venture capital trusts index-linked gilts, 2nd, 3rd inflation, 2nd, 3rd, 4th, 5th cash on deposit, 2nd index-linked gilts, 2nd, 3rd inflation-linked corporate bonds inheritance tax, 2nd, 3rd, 4th AIM shares, 2nd Junior ISAs SIPPs, 2nd, 3rd insolvency of product providers insurance interest cover ratio interest rates, 2nd bonds: effect of, 2nd cash ISAs, 2nd investment platforms, 2nd intestacy investment accounts Dealing Account see separate entry ISA see separate entry SIPP see separate entry investment grade bonds, 2nd, 3rd investment platforms, 2nd, 3rd, 4th cash accounts, 2nd, 3rd, 4th, 5th, 6th charges, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th choosing complaints dividends, 2nd, 3rd equities, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th ETFs initial charge on funds, 2nd, 3rd, 4th, 5th insolvency, 2nd investment trusts, 2nd, 3rd ISAs, 2nd, 3rd, 4th, 5th, 6th Level 2 market data management charge: commission to, 2nd, 3rd, 4th, 5th, 6th, 7th model portfolios, 2nd, 3rd, 4th overseas equities, 2nd, 3rd rebates to investors, 2nd, 3rd, 4th, 5th, 6th retail corporate bonds RNS alerts by email or text shareholder perks, 2nd SIPPs, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th stop losses and limit orders venture capital trusts investment trusts, 2nd, 3rd, 4th, 5th, 6th, 7th borrowing/gearing, 2nd charges, 2nd, 3rd corporate actions discounts, 2nd, 3rd, 4th, 5th, 6th dividends exchange market size (EMS) history mechanics of buying and selling net asset value (NAV), 2nd performance premiums, 2nd, 3rd REITs research risks, 2nd sectors covered by share price split-capital trusts, 2nd, 3rd, 4th structure subscription shares tax, 2nd venture capital trusts, 2nd, 3rd warrants, 2nd investments advanced DIY investor cash see separate entry corporate bonds and gilts see separate entry equities see separate entry funds see separate entry investment trusts see separate entry ISAs: permitted, 2nd, 3rd, 4th, 5th, 6th, 7th SIPPs, 2nd, 3rd, 4th, 5th, 6th, 7th tracker funds see separate entry ISA (Individual Savings Account), 2nd, 3rd, 4th, 5th, 6th Bed and, 2nd cash, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th charges, 2nd, 3rd, 4th, 5th finding a provider history of investment platforms, 2nd, 3rd, 4th, 5th, 6th Junior paying money in permitted investments, 2nd, 3rd, 4th, 5th, 6th, 7th SIPP or, 2nd, 3rd stocks and shares, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th tax, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th transferring existing, 2nd who can pay into why have workings of ISIN number junk bonds, 2nd, 3rd KIID (Key Investor Information Document) life expectancy, 2nd, 3rd, 4th life insurance investment bonds long-term buy and hold, 2nd long-term investing market makers, 2nd, 3rd medium-term investing model portfolios, 2nd, 3rd, 4th money market/cash funds, 2nd, 3rd money purchase schemes company schemes SIPP see separate entry Morningstar, 2nd National Insurance contributions SIPPs, 2nd, 3rd National Savings & Investments (NS&I), 2nd Newcits nominees, 2nd, 3rd objectives portfolio building occupational pension schemes see company pension schemes OEICs (open-ended investment companies) see funds onshore and offshore life insurance investment bonds open-ended funds exchange-traded funds (ETFs) see separate entry unit trusts and OEICs see funds ORB (Order Book for Retail Bonds), 2nd overseas banks overseas investments, 2nd, 3rd SIPPs overseas residents P/E ratio, 2nd, 3rd P60 form passive funds see tracker funds pensions annuities, 2nd, 3rd, 4th auto-enrolment into workplace bankruptcy calculators on internet final or career average salary schemes, 2nd, 3rd impact on fund of charges money purchase schemes see separate entry objectives overseas schemes SIPP see separate entry stakeholder, 2nd Pensions Advisory Service Pensions Ombudsman PEPs (Personal Equity Plans) performance fees, 2nd permanent interest bearing shares (PIBS), 2nd perpetual sub bonds (PSBs), 2nd personal pension schemes SIPP see separate entry political and regulatory risk portfolio construction, 2nd pound-cost averaging, 2nd property commercial see separate entry residential, 2nd, 3rd, 4th QROPS (Qualifying Recognised Overseas Pension Scheme) quantitative easing rampers rating agencies, 2nd, 3rd, 4th ratios, financial, 2nd, 3rd, 4th re-registration investment platforms ISAs SIPPs, 2nd Real Estate Investment Trusts (REITs) reckless caution regulatory and political risk resident abroad residential property holiday homes, 2nd REITs Retail Distribution Review (RDR), 2nd, 3rd, 4th, 5th, 6th, 7th, 8th retirement, 2nd pensions see separate entry rights issues risk appetite, 2nd objectives, strategy and risks, 2nd AIM shares building risk adjusted portfolio cash and inflation, 2nd corporate bonds and gilts, 2nd, 3rd, 4th, 5th equities, 2nd, 3rd, 4th ETFs FTSE SmallCap investment trusts, 2nd overseas equities pound-cost averaging, 2nd structured products RNS (Regulatory News Service) alerts by email or text salary sacrifice scrip dividend Section 32 plan, 2nd SEDOL number self assessment tax return, 2nd, 3rd, 4th shares see equities ‘shelf-space’ deals SIPP (Self-Invested Personal Pension), 2nd, 3rd, 4th, 5th Bed and benefits see SIPP, taking benefits from borrowing charges, 2nd, 3rd, 4th complaints contributions death and assets in, 2nd divorce full or full fat, 2nd, 3rd history investment platforms, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th investments, 2nd, 3rd, 4th, 5th, 6th, 7th ISA or, 2nd, 3rd loans by overview, 2nd reasons to have or not recycling, 2nd salary sacrifice tax and SIPPs see separate entry transferring existing pensions into/out of see separate entry VAT SIPP, taking benefits from capped drawdown, 2nd, 3rd flexible drawdown, 2nd, 3rd, 4th, 5th incapacity, 2nd income drawdown, 2nd, 3rd, 4th, 5th, 6th, 7th lifetime allowance, 2nd lifetime annuities see annuities normal minimum pension age overview partial drawdown protected pension age protected tax-free lump sum protection from lifetime allowance serious ill-health small funds withdrawal tax on pensions tax-free lump sum, 2nd, 3rd, 4th transitional protection, 2nd smaller companies, 2nd, 3rd, 4th, 5th, 6th specialist funds split-capital trusts, 2nd, 3rd, 4th spouse, 2nd, 3rd, 4th, 5th gifts to, 2nd, 3rd income drawdown, 2nd spread betting stamp duty, 2nd, 3rd, 4th, 5th, 6th AIM shares ETFs, 2nd investment trusts star fund managers, 2nd stock transfer form stockbrokers, 2nd, 3rd stocks see equities stop loss and limit orders, 2nd strategies for investing, 2nd growth income long-term buy and hold, 2nd objectives, risk appetite and passive value structured products takeovers tax, 2nd, 3rd AIM shares Bed and breakfast, 2nd Bed and ISA, 2nd Bed and SIPP Bed and spouse Dealing Account, 2nd, 3rd death, 2nd dividends, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th EISs, 2nd equities, 2nd, 3rd, 4th, 5th ETFs, 2nd funds, 2nd, 3rd, 4th gifts to spouse or civil partner, 2nd interest income, 2nd, 3rd, 4th, 5th investment trusts, 2nd ISA or SIPP, 2nd ISAs, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th Junior ISAs and inheritance National Savings certificates onshore and offshore life insurance investment bonds overseas equities PIBS rebates of commission to investors, 2nd, 3rd REITs SIPPs see tax and SIPPs stamp duty see separate entry takeovers VAT, 2nd venture capital trusts, 2nd withholding tax and SIPPs, 2nd, 3rd, 4th, 5th, 6th Bed and SIPP bond income or gains contributions and tax relief, 2nd, 3rd, 4th death, 2nd enhanced protection, 2nd excess over lifetime allowance fixed protection interest on cash, 2nd, 3rd investments, 2nd pension income, 2nd serious ill-health tax-free lump sum, 2nd, 3rd, 4th, 5th unlisted shares TESSAs (Tax-Exempt Special Savings Accounts) time commitment tips in financial press, 2nd, 3rd, 4th total expense ratio (TER), 2nd, 3rd, 4th tracker funds, 2nd, 3rd, 4th, 5th, 6th active vs passive debate, 2nd emotion taken out of investing exchange-traded funds (ETFs) see separate entry indices, 2nd structure of transferring existing pensions into/out of SIPP charges and transfer penalty, 2nd defined benefits, 2nd guaranteed annuity rates in-specie transfers, 2nd issues to consider options at retirement overseas schemes partial transfers pensions in payment, 2nd protected pension age rules on pension transfers transitional protection, 2nd types of pension scheme with-profits investments, 2nd Trustnet, 2nd, 3rd, 4th UCIS (Unregulated Collective Investment Schemes), 2nd, 3rd, 4th UCITS (Undertakings for Collective Investments in Transferable Securities), 2nd, 3rd, 4th unit trusts see funds United States, 2nd unquoted shares SIPPs, 2nd, 3rd, 4th, 5th, 6th value investor VAT (value added tax), 2nd venture capital trusts (VCTs), 2nd, 3rd warrants, 2nd websites, 2nd, 3rd, 4th, 5th advanced DIY investor equities, 2nd, 3rd ETFs funds, 2nd, 3rd gilts investment trusts, 2nd ISAs PIBS pricing of platforms, 2nd retail corporate bonds risk-profiling tools savings accounts, 2nd PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First published 2013 (print and electronic) © Andy Bell 2013 (print and electronic) The right of Andy Bell to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

Orange County, California, lost millions on derivatives, and filed for bankruptcy rather than tax its rich citizens enough to make good on their debts,'^ and a small army of Wall Street hotdogs were either badly wounded or driven (at least temporarily) out of business. To avoid embarrassment and possible runs, several prominent mutual fund companies had to subsidize derivatives losses in bond and money-market funds. People heard and said bad things about derivatives without too clear a sense of what they are. The word refers to a broad class of securities — though securities seems too tangible a word for some of them — whose prices are derived from the prices of other securities or even things. They range from established and standardized instruments like futures and options, which are very visibly traded on exchanges, to custom-made things like swaps, collars, and swaptions.

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Congressional Budget Office 1993)- Thrifts were insulated from competition by limits on commercial bank deposits Thrifts prospered during the housing boom that followed World War IL Deposits and mortgage loans soared, though capital ratios sank as profits lagged growth. Growing competition from banks for both deposits and mortgage loans in the 1960s and money market funds for deposits in the 1970s drew customers away from thrifts. Worse, the inflation and high interest rates of the later 1970s exposed the S&Ls' tragic flaw, borrowing short to lend long: depositors tempted by higher rates in the unregulated world were free to withdraw on a whim, but their funds had been committed by thrift managers to 30-year mortgages.

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Since financial asset prices are built largely of expectations about the future, stimuli or depressants to those expectations bear very directly on their prices. Optimism boosts prices, and pessimism depresses them. Relative attractiveness of alternative investments. When interest rates are low or falling, people despair of the earnings on their Treasury bills, bank deposits, or money market funds; they search for juicier profits, and plunge into stocks or long-term bonds, which typically pay higher interest rates than short-term instruments. But when rates are rising, the relative attractiveness of short-term investments rises. If you can earn 7% on a CD, it may not be worth taking the extra risk of holding stocks; but at 2% interest rates, stocks seem much less intimidating — irresistible even.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

The next day, the Reserve Primary Fund, a money market fund with about $65 billion in assets, announced that they were “breaking the buck”—shares in their fund that were supposed to be valued at $1.00 were now worth 97 cents. Many customers treat their money market funds like a bank’s checking account; what would you do if your bank told you that the assets in your checking account just lost 3 percent in value overnight? The difference is that the Federal Deposit Insurance Corporation (FDIC) insures the assets in your checking account up to $100,000, while money market funds were not insured at that time (now they are).

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Currently, the legal definition of a sophisticated investor is someone with at least $2.5 million in net worth. Because such investors can withstand significant financial losses, and are assumed to understand the risks of a private investment partnership, hedge funds are under much less stringent regulation than a mutual fund or a money market fund. Hedge funds used to be almost completely unregulated, but under the Dodd-Frank Act of 2010, hedge funds are now required to register with the Securities and Exchange Commission (SEC) and provide a certain amount of information to the government. Even so, there are still very few restrictions on what a hedge fund can or can’t do.

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The particular species of the financial ecosystem that benefited from the real estate boom were (in alphabetical order): central bankers; commercial banks; credit rating agencies; economists; government-sponsored enterprises; hedge funds; homeowners; insurance companies; investment banks; investors; money market funds; mortgage lenders, brokers, servicers, and trustees; mutual funds; regulators; and politicians. Everyone had an incentive to keep the bubble growing, since a rising tide lifts all boats. As Warren Buffett warned, however, it’s only when the tide goes out that you find out who’s swimming naked.

The Power of Passive Investing: More Wealth With Less Work
by Richard A. Ferri
Published 4 Nov 2010

Marlena Lee, a research associate at Dimensional Fund Advisors with a Ph.D. from the University of Chicago wrote an unpublished study on bond fund returns in 2009. Lee analyzed 2,353 bond funds over the period from January 1991 to December 2008. The data included investment-grade, high-yield, and government bond funds from the CRSP Survivor-Bias-Free U.S. Mutual Fund Database. It excluded municipal bond funds, money market funds, index funds, and asset-backed funds.4 Lee used a five-factor risk model for her analysis. The five-factor model was based on the Fama-French Three-Factor Model plus two bond specific risk factors: term risk and default risk. This model was modified from an earlier five-factor model introduced by Fama and French in 1993.5 Lee concluded that the average underperformance of actively managed bond funds was 0.9 percent after adjusting for risk.

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Chapter 12 covers charities and private trusts, while Chapter 13 covers pension funds and self-directed employer-sponsored plans such as 401(k) plans. Step 2: Study Market Risk and Estimate Returns Asset classes are broad categories of investments such as stocks, bonds, real estate, commodities, and money market funds. Each asset class can be further divided into categories. For example, stocks can be categorized into U.S. stocks and foreign stocks. Bonds can be categorized into taxable bonds and tax-free bonds. Real estate investments can be divided into owner-occupied residential real estate, rental residential real estate, and commercial properties.

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A good way to look at asset allocation is as if an investor has two portfolios: a short-term portfolio for current cash needs plus emergency money and a long-term portfolio that provides cash for long-term liabilities and builds wealth. This approach is no different than a corporate balance sheet where current assets and current liabilities are separate from long-term assets and long-term liabilities plus owner’s equity. The short-term portfolio should be in safe assets such as money market funds, certificates of deposit, and short-term bond funds. The return on these investments won’t be high, but a high return is not the primary reason for investing this money. Safety is the most important objective. No investor should risk this capital because it’s needed to pay bills over the next year.

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

This does not seem like the time the population at large would embrace the stock market. The recession led to a slowing of consumer borrowing, yet net cash flows into stock mutual funds rose from $8 billion in 1985 to $13 billion in 1990 to $79 billion in 1992 and to $127 billion in 1993. In 1992 and 1993, money market funds suffered net outflows.23 The stock market was about to replace the bank deposit system (and money market funds) as the backbone of household wealth. The Recovery: Cutting Workers and Investment The economists declared the recession was over in March 1991, but there was little evidence of a recovery. Moreover, the large layoffs that followed were different from previous recessions; now, management was dismissed en masse.

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At the August 16 meeting, Greenspan expressed satisfaction: “I think we clearly demonstrated that the bubble for all practical purposes has been defused.”37 The FOMC raised the funds rate another 0.50 percent at this meeting, to 4.75 percent. (It would follow with two more rate increases, to 6.0 percent, by February 1, 1995.) Greenspan was also forthright in public. On May 27, 1994, he told Congress that depositors had shifted their money out of banks and from money market funds into stocks and bonds, “and some of those buying the funds perhaps did not fully appreciate the exposure of their new investments to the usual fluctuations in bond and stock prices.”38 The Federal Reserve chairman was obviously well versed in the novice investor’s exposure to unfamiliar territory.

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Alan Greenspan condemned asset inflation during the 1950s and 1960s; by the 1990s, he claimed that it didn’t exist, and even if it did, there was nothing that the Federal Reserve could do, since it could not recognize a bubble. The oldest generation was not up to running these personal hedge funds; it earned 1 percent on money market funds and ate cat food. Ben Bernanke has driven short-term interest rates below zero (after subtracting price inflation) to refloat the financial system that the Fed has overindulged and mismanaged at every turn. Now, suffering another asset deflation—following another asset bubble—the Federal Reserve is driving the young and old to cat food.

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal
by Ludwig B. Chincarini
Published 29 Jul 2012

Morgan Stanley also started making some of its financial statements more transparent by specifying the contents of corporate and other debt, which it had not done in previous financial statements. CHAPTER 12 The Absurdity of Imbalance Next to love, balance is the most important thing. —John Wooden When Lehman Brothers went into bankruptcy, the first sign of trouble happened in a money market fund called the Reserve Primary Fund (RPF). With $65 billion in assets, the RPF was one of the largest money market funds in the United States. Money market funds are a short-term savings vehicle and are considered extremely safe, because they invest in short-term, safe assets. One of RPF’s investments was in Lehman Brothers commercial paper, which companies issue for short-term financing.

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CHAPTER 11 The Lehman Bankruptcy There’s no doubt that things feel better today, by a lot, than they did in March…the worst is likely to be behind us… —Hank Paulson, Treasury Secretary, May 6, 2008 Seven days after the government rescued Freddie Mac and Fannie Mae, Lehman Brothers declared bankruptcy. Their failure made commercial paper markets falter, making it difficult for companies to borrow short-term funds. It caused a run on money market funds, created an imbalance in the bond and swap markets, and depressed the stock market. Lehman failed because of its large real estate exposure and because of a market that didn’t trust its solvency, leading to a run on the bank and guaranteeing its failure. The government did nothing to rescue Lehman.

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The fund “broke the buck,” meaning its net asset value was less than $1 a share. It was losing money, which is nearly unheard of in a short-term, almost riskless investment. Investors began to panic. The RPF had a total of $39 billion in withdrawals, and other crowds withdrew money from other money market funds, pulling a total of $172 billion from a $3.45 trillion market. The market stopped trusting commercial paper. Commercial paper yields shot up, going from 10 basis points over the Federal Funds rate to 150 basis points over the Fed Funds rate in just two days. Large U.S. companies fund themselves through the commercial paper market, and the yield spike made it too costly for them to finance their activities.

No Slack: The Financial Lives of Low-Income Americans
by Michael S. Barr
Published 20 Mar 2012

Savings Percent unless otherwise noted All Banked Unbanked Savings horizona This year Next year In five years In ten years In more than ten years 47.6 33.9 17.4 7.3 14.2 47.8 33.7 17.9 7.3 14.9 46.3 34.8 14.9 7.1 10.8 Facing major expense for which unable to save Feels in deep financial trouble 37.0 18.4 36.7 14.6 37.7 28.0 Saving is not “worth it” Agree Disagree 16.4 83.4 16.6 83.3 16.4 83.6 Hard to save because money goes to necessities Agree Disagree 85.1 14.6 81.7 17.9 93.5 6.5 Hard to save because hard to resist spending Agree Disagree 64.9 34.6 61.3 38.3 73.8 25.6 Frequency of saving In past year More than once a month Every month Most months About half of months A few months Once or twice Never 54.1 10.4 19.2 4.0 3.7 5.5 11.3 45.9 62.7 12.8 23.2 4.0 4.6 6.3 12.0 37.3 32.8 4.5 9.4 4.0 1.7 3.7 9.5 67.2 Mean amount contributed (dollars)b Median amount contributed (dollars) 2,474 (385) 1,000 2,825 (447) 1,000 Asset holdings Savings account Retirement savings Life insurance Money market funds Jewelry, electronics Car Home 49.2 48.2 30.3 17.0 15.3 73.0 45.4 67.8 51.1 35.7 22.9 14.9 79.6 53.4 Reasons to save Financial security Emergency or medical costs Unanticipated job loss Special events Home improvements 78.2 69.9 50.9 52.8 49.3 79.1 68.7 48.1 49.3 49.1 12864-02_CH02_3rdPgs.indd 39 949 (202) 300 0.0 34.9 16.9 2.4 16.5 56.5 25.7 74.3 75.8 64.3 69.2 50.3 (continued) 3/23/12 11:55 AM 40 michael s. barr Table 2-5.

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About 90 percent of the LMI households accumulate physical and financial assets in both formal and informal ways; 75 percent hold formal or informal financial assets. Nearly half have a savings account, 36 percent have retirement savings, and 30 percent have life insurance, while only 17 percent have money market funds, bonds, or CDs, and 15 percent save through holding cash, jewelry, gold, appliances, or electronics. Nonfinancial assets are more valuable than financial assets for LMI households. Roughly 75 percent of respondents own a car, and 45 percent own a home. Owning a car and home significantly increases the median value of assets for respondents—to about 12864-02_CH02_3rdPgs.indd 42 3/23/12 11:55 AM managing money 43 $68,000—but that amount falls to $2,500 when the value of homes and automobiles is excluded.

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Assets, Debts, and Income, by Bankruptcy Filing a Dollars unless otherwise noted Ever declared Declared, but not recently 1,636 43.9 490 39.2 627 43.0 96 28.2 1,843 44.7 44,614 40.3 8,274 6.4 10,338 3,000 73.9 876 3.3 7,495 11.0 9,525 28.0 4,485 14.0 4,277 13.7 1,282 14.0 15,527 24.8 190 1.5 108,520 38,400 89.2 40,958 37.6 7,620 6.4 13,406 6,000 94.3 565 3.5 5,720 12.8 10,761 32.6 3,173 14.2 7,291 12.8 1,690 14.9 25,543 29.8 16 2.1 117,234 52,900 91.7 46,531 40.0 7,489 5.7 14,342 8,000 92.4 305 2.9 5,265 11.4 12,499 31.4 4,086 14.3 9,685 12.4 2,200 16.2 31,114 27.0 21 2.9 134,164 60,200 94.6 24,989 28.9 7,998 7.9 10,724 3,400 94.7 1,311 5.3 7,025 15.8 5,781 34.2 560 13.2 432 13.2 227 10.5 9,581 36.8 0 0 68,722 50,000 83.5 45,344 35.0 8,415 5.9 9,775 3,000 90.8 934 3.1 7,834 10.6 9,330 20.4 4,646 9.4 3,753 10.0 1,213 13.7 13,664 20.2 222 1.6 106,972 31,600 88.7 3.0 3.2 3.3 2.8 3.0 1,548 38.1 16,941 26.6 461 2.0 1,257 44.9 22,126 30.0 882 5.7 1,424 48.6 24,761 32.4 1,190 7.7 780 34.5 14,576 22.9 0 0 All Asset Amount in checking and savings accounts Value of house Other real estate Vehicles Business or farm Stocks or investments IRAs Retirement account Money market funds Jewelry, gold, other goods Other assets Additional savings Total assets Has at least one asset Mean number of assets Debt Credit card Mortgage Second mortgage 12864-08_CH08_2ndPgs.indd 190 Declared in past twelve months Never declared 1,602 36.1 16,047 26.0 387 1.3 (continued) 3/23/12 11:57 AM living on the edge of bankruptcy 191 Table 8-3.

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

Volatility in such funds was increasing dramatically, but the growth of inflation in the 1970s meant that investors were desperate to earn a decent return. Despite the risks, they began moving money from bank deposit accounts to money market funds and mutual funds. This shift, as we have seen, had the domino effect of encouraging the banking industry to push for deregulation that would allow it more access to the consumer market, contributing to debacles like the 2008 subprime crisis. “With the rise of bond funds and money market funds, nearly all of the major fund managers—which for a half-century had primarily operated as professional investment managers for one or two equity funds—became business managers, offering a smorgasbord of investment options,” says Bogle.12 Suddenly the primary goal of funds wasn’t to earn steady returns for clients, but to earn profits for the firm.

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Globally, it was 20 percent bigger in late 2013 than in late 2007 (and US regulators are trying to police it with budgets that haven’t increased much since then).6 And that’s just what we can see. Shadow banking, the portion of the financial industry that remains largely unregulated (and includes hedge funds, money market funds, and financial arms of big companies like GE), has grown like kudzu: swelling by more than $1.3 trillion per year since 2011 and reaching $36 trillion today.7 Through it all, low interest rates set by the Federal Reserve, which were supposed to help individuals, ended up making the rich richer by inflating the stock market rather than improving the ability of real people to refinance their homes.

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Since the financial crisis of 2008, it’s the shadow banking sector rather than the federally guaranteed banks that has grown like kudzu, as risk migrates to the darkest parts of the system. While the share of formal bank assets has declined as a percentage of the total global financial system, shadow banks (which include not only private equity but also hedge funds, money market funds, structured finance vehicles, real estate investment trusts, and other exotic, acronym-wielding creatures) grew by 10 percent in 2014 alone, reaching $36 trillion, or more than twice the size of the U.S. economy.45 It’s telling that as regulators have tried with varying degrees of success to shine a light on the formal banking sector, money, talent, and risk have quickly fled to the informal sector.

Financial Independence
by John J. Vento
Published 31 Mar 2013

Also, if you are saving for anything other than the proverbial rainy day, such as for a house, wedding, new car, or special trip, count these funds as extra. (It might even be helpful to open a separate savings account for these larger separate items you are saving for.) Given the relatively low interest rates offered at this time on cash instruments (which include savings accounts, money market funds, and certificates of deposit, or CDs), and the fact that the current rate of inflation is higher than the interest rate, you may actually be losing money on the ultimate purchasing power of your savings. However, do not let this alarm you too much. Saving in this way is still an essential part of getting to point X.

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c03.indd 32 26/02/13 4:52 PM Determining Your Financial Position 33 $750,000. Furthermore, James’ investment portfolio, variable annuity, and IRA accounts are 100 percent invested in stock. This is not a well-balanced portfolio, and he may be taking on too much risk. Conversely, Patricia has 100 percent of her IRA account in money market funds, which are currently paying 0 percent! It seems clear that they need professional guidance and management from a financial advisor to help them diversify their investments so that they can both minimize their risks and maximize their returns.2 With regard to their retirement accounts, they have a total of only $55,500, which includes a variable annuity and their IRA accounts.

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Savings 529 tuition plans generally allow you to establish an account for a beneficiary for the purpose of paying the beneficiary’s qualified educational costs. As the account holder, you typically have several investment choices for your contributions in the 529 savings plan, which typically include stock and bond mutual funds as well as money market funds. Some also offer age-based portfolios. You can usually use the distributions from 529 savings plans at any U.S. college or university. Your beneficiary has the flexibility of choosing any college or university he or she gets accepted to, in any state. It is important to note that the investments in these 529 savings plans are not guaranteed by state governments.

Work Less, Live More: The Way to Semi-Retirement
by Robert Clyatt
Published 28 Sep 2007

Stock Fund on January 1, 2008 has actually grown to $400,000, the holding is overallocated by $400,000 – $348,150, or $51,850. By selling $51,850 worth of the U.S. Stock Fund, money is available not only to restock the money market fund, but also to buy either REIT Funds or U.S. Bond Funds, both of which are underallocated. The buying and selling in these four funds and the money market will net out to zero—meaning you will have raised just enough selling winners to purchase the additional amounts you need in the funds that have declined. Note that putting about 2% in the money market fund at the beginning of each year, when added to the 2% to 2.5% that most portfolios produce in interest and dividends over the course of the year, together neatly fund annual spending needs at a 4% to 4.5% safe withdrawal level

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These will give you, for instance, funds tracking the International Small or International Large Value asset classes, making them a good fit for investors following the Rational Investing Method. Know Your Required Return It is possible to create portfolios with almost no risk—for example, those composed of bank CDs or money market funds—but they will generally lack sufficient return. The semi-retiree’s portfolio must remain substantially intact or grow against the triple assault of inflation (assume 3% per year), fees and trading costs (0.5% or so each year), and a 4% to 5% annual withdrawal over short periods as well as over the long run.

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Most funds invested in Small International Stocks are closed to new investors now after years of stellar results. Top funds from Vanguard, Fidelity, Oakmark, and Artisan all closed in the 332 | Work Less, Live More last few years. However, the DFA Small International funds remain open to those with access to these DFA funds through an adviser. Bonds Short-Term Bonds/Cash This is the typical money market fund in which cash is swept or left while awaiting investing, spending, or rebalancing. An alternative that might have slightly higher yield would be Vanguard’s Short-Term Investment grade Corporate Bond fund. Treasuries For this asset class, buy Treasury Bonds or inflation-adjusted I-Bonds directly through Treasury Direct at www.treasurydirect.gov, buy a U.S.

Keeping at It: The Quest for Sound Money and Good Government
by Paul Volcker and Christine Harper
Published 30 Oct 2018

So it wasn’t too long before Chairman Patman, the congressional archenemy of the Fed, got his way. Financial crises became the order of the day. By the end of the 1970s, the financial world I’d always known was beginning to break down. The unique role of commercial banks was challenged by new rivals. Proliferating money market funds, free of regulation, offered higher yields than bank deposits. Investment banks increasingly began trading to generate revenue and competed to finance ambitious corporate takeovers and leveraged buyouts. Traditionally conservative “thrift” institutions—savings and loans and mutual savings banks—became more aggressive, taking advantage of lax regulation and higher interest-rate ceilings than those enforced on commercial banks.

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Given our past experience, former Bush Treasury secretary Nick Brady and I would, from time to time, put our heads together. We were both concerned that Bear Stearns would be only the leading edge of the gathering crisis. The two big mortgage agencies, Fannie Mae and Freddie Mac, were under pressure. Money market funds seemed vulnerable and strange excesses seemed to be appearing in the derivatives market. Along with Gene Ludwig, the former comptroller of the currency, we formulated a plan: establish a governmental agency other than the Fed that would be equipped to buy assets and inject capital into vulnerable institutions, following the pattern of the Resolution Trust Corporation that helped clean up the savings and loans in the later 1980s and early 1990s (itself modeled on the Reconstruction Finance Corporation established in 1932 by the conservative Republican Hoover administration).

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He also emphasized the need for greater Federal Reserve oversight of the major financial institutions and more effective interaction among the various agencies. To my mind, several key issues were unresolved, including really effective reorganization of the regulatory structure, the appropriate role of money market funds, and, critically, restraints on speculative trading by government-protected commercial banks, which now included major investment banks that had been allowed to convert to banks with Fed supervision and support at the height of the crisis. I’d lived through enough financial crises, and enough Federal Reserve Boards and chairmen, to know that there had been repeated lapses in attention paid to potential threats to financial stability.

The Bond King: How One Man Made a Market, Built an Empire, and Lost It All
by Mary Childs
Published 15 Mar 2022

If Dell or Kodak is going bust, you’ll have more than three months’ notice. Because of that perceived safety, the notes yield only a little more than U.S. government debt. But now, Lehman. A huge money market fund, the Reserve Primary Fund, had bought almost $800 million in commercial paper from Lehman, which became worthless when Lehman failed. That’s extraordinarily bad for any fund, but in a “money market fund,” it’s historic. In the $3.45 trillion money market industry, it’s supposed to be a law of nature that $1 will always equal $1; clients must be able to get their $1 out, at any time. If the value of the fund’s assets dips below $1 a share, which it never should, that’s called “breaking the buck.”

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If the value of the fund’s assets dips below $1 a share, which it never should, that’s called “breaking the buck.” When Lehman filed, the value of one Reserve Fund share fell to $0.97. It was the second buck ever broken. Investors rushed to pull their money from money market funds before the next guy could. In a matter of days, almost $200 billion evaporated. To stop the panic in money markets, the government stepped in, promising to back these types of funds. One dollar would again be one dollar. It almost worked. The pace of redemptions slowed, but stocks were careening, and money was pouring out of financial markets wherever it could find an opening.

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“We’ve been supporting Treasuries almost one for one,” he told The Atlantic. “At 8 A.M., the Fed calls up and asks our Treasuries desk for offers to buy, and one hour later, the Fed’s asking for bids to sell them.” In doing so, the Fed was lowering rates across the spectrum, from safe savings accounts, money market funds, bonds that mutual funds could buy, and onward—“picking the pockets,” in his view, of people who’d saved or invested their hard-earned money. “God bless Ben Bernanke and Tim Geithner for what they’re trying to do, but the net result of a lot of what they’re doing is to take money out of the hands of savers.”

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

After the Fed funds rate was cut to zero in 2008, investors were more desperate for yield than ever. A new carry regime emerged, complete with shadow banks, complex securitizations, deteriorating credit standards and even subprime debt. It was ‘déjà vu all over again’.7 In the era of zero rates, cash was trash. PIMCO’s Bill Gross noted that by late 2012 the rate paid on his brokerage money market fund was just 0.01 per cent, which meant that $10,000 of savings would not yield enough to buy a cup of coffee. It was only natural that the search for yield should resume. Yield-chasing after 2008 took on myriad forms, from online peer-to-peer lending to investments in listed ‘yieldcos’, which, as their name suggests, were designed to attract yield-hungry investors.

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Other income-enhancing vehicles included business development corporations (lenders to small businesses), master-limited partnerships, preference share funds, high-yield municipal bond funds, commercial mortgage-backed securities and real estate investment trusts. Having ‘broken the buck’ (i.e., traded below par) after the Lehman bust, money market funds were also forced to take more credit risk to survive in the era of zero rates.8 High-yielding reinsurance funds, known as ‘catastrophe bonds’, proved so popular that they brought down the cost of reinsurance. As one investor told the Wall Street Journal, the fixed-income market was ‘acting like one giant insurance company’ – just as Galiani thought it should act.

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Collateralized loan obligations (CLOs) – a nearly identical security to the ‘toxic’ collateralized debt obligations (CDOs) that fuelled subprime lending and later spectacularly imploded – found a ready market. ‘Ultra-short’ bond exchange-traded funds (ETFs) provided an income-enhancing alternative to money market funds and bank deposits.34 As long as liquidity remained abundant, these investment vehicles could be treated as money substitutes. A decade after the financial crisis, more than $1 trillion was invested in credit ETFs.35 This represented only a small fraction of shadow bank activity.36 Investors were sailing into very shallow waters.

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society
by Will Hutton
Published 30 Sep 2010

By the mid-2000s, this business and the institutions behind it had grown exponentially to form a shadow banking system with twin operations in the interdependent New York and London markets. Simultaneously, they had paved the way for the new financial industries of hedge funds – investment vehicles constructed solely to take high-risk positions in the quest for unprecedented gain – private equity and money market funds. But many of the new institutions – the money market funds, the hedge funds and even the investment banks themselves – did not have access to a central bank acting as lender of last resort; nor did they have any form of deposit insurance. Furthermore, in the guidelines for the 2004 Basel prudential banking rules – so-called Basel 2 – the international regulators amazingly handed back to the banks responsibility for assessment of their own risk and thus left them to decide the amount of capital they should hold.

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Nor does greed play a particularly overwhelming role. The natural pressures of competition alone drive down the returns on lending while the demand to show good and rising returns mounts – forces on their own that encourage riskier lending. From the 1970s through to the 2000s, banks faced ever more competition for depositors’ cash: money market funds in the United States and demutualised building societies in the UK offered ever more attractive rates to depositors while large corporations built up treasury departments whose sole raison d’être was to maximise the interest on their cash. At the same time, transient, footloose shareholders demanded higher and quicker profits.

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China was already in the process of proving that all of this was bunk by financing its world-beating growth through tightly controlled and regulated banks, but that did not stop the advocates of deregulation touting their theories with ever more zeal.24 Nothing could shake the consensus that lifting controls was good for everyone, and any costs were but transient blips on the road to the Nirvana of a competitive, deregulated banking system. The problem was that there was no steady-as-she-goes middle way. Deregulation was unstable. Once it had begun in one field, its logic demanded that it should be extended to others. Allow money market funds to compete for deposits, for example, and soon policy-makers had to allow banks to fight fire with fire by lifting controls on their interest rates. A level playing field demanded that the entire terrain had to become deregulated. The first British experiment in deregulation gave a warning of what was to come.

Money: 5,000 Years of Debt and Power
by Michel Aglietta
Published 23 Oct 2018

This flourishing array of funding instruments constitutes a wholesale liquidity market ruled by the broker dealers (investment banks and the trading departments of universal banks). These new forms of liquidity are largely detached from retail banking and thus from deposit insurance. Fed by ‘money market funds’, this wholesale market provides a basis for shadow banking with enormous leverage and a systematic ‘mismatch’ of maturities, without any liabilities-side stability. Up until the general crisis in 2008, this market intermediation system operated through opaque risk transfer chains, unknown to market regulators and central banks.

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These include synthetic, not completely replicated ETFs (Exchange Traded Funds); tripartite Repurchase Agreements (repos) exposed to forced collateral sales and excessively dependent on clearing banks’ intra-day credit to broker dealers; uninsured ABCP (Asset-Backed Commercial Paper) and FCP (Fonds communs de placement); aggressively yield-seeking money market funds, whose liabilities are presumed to be equivalent to money; and the products of non-standard securitisation, negotiated in opaque over-the-counter chains. Dynamic vulnerabilities refer to the high leverage of shadow banks (broker dealers, hedge funds, special purpose vehicles and conduits) and the maturity transformations incorporated into derivatives products.

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In principle, structural vulnerabilities are dealt with by static, or permanent, means: these include more demanding capital and liquidity obligations for the big banks, an authority that can resolve bank collapses in an orderly way, the centralised clearing of derivatives, and means of avoiding runs on money market funds. Yet even all of this is not enough to bypass the financial cycle. Innovations always exceed the limits established by the existing regulations. As we have seen, the financial system is strongly pro-cyclical and thus develops dynamic vulnerabilities of a macroeconomic character. It is necessary to be able to keep watch over the variations in the price of risk that result from lenders’ and borrowers’ strategic interactions.

Money Mischief: Episodes in Monetary History
by Milton Friedman
Published 1 Jan 1992

But that does not alter the fact that they and they alone have the arbitrary power to determine the quantity of what economists call base or high-powered money—currency plus the deposits of banks at the Federal Reserve banks, or currency plus bank reserves. And the entire structure of liquid assets, including bank deposits, money-market funds, bonds, and so on, constitutes an inverted pyramid resting on the quantity of high-powered money at the apex and dependent on it. Who are these nineteen people? They are seven members of the Board of Governors of the Federal Reserve System, appointed by the president of the United States for fourteen-year nonrenewable terms, and the presidents of the twelve Federal Reserve banks, appointed by their separate boards of directors, subject to the veto of the Board of Governors.

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At the other extreme, in financially advanced and complex societies, such as the United States today, a wide array of assets is available that can serve as more or less convenient temporary abodes of purchasing power. These range from cash in pocket, to deposits in banks transferable by generally accepted check, to money-market funds, credit-card accounts, short-term securities, and so on, in bewildering variety. They reduce the demand for real cash balances narrowly defined, such as currency, but they may increase the demand for real cash balances more broadly defined by making temporary abodes of purchasing power useful in facilitating shifts between various assets and liabilities.* (2) Cost.

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In addition, inflation in the United States produced a rise in nominal interest rates that converted the government's control, via Regulation Q, of the interest rates that banks could pay from a minor to a serious impediment to the effective clearing of credit markets. One response was the invention of money-market mutual funds as a way to enable small savers to benefit from high market interest rates. The money-market funds proved an entering wedge to financial innovation that forced the prompt relaxation and subsequent abandonment of control over the interest rates that banks could pay, as well as the loosening of other regulations that restricted the activities of banks and other financial institutions. Such deregulation as has occurred came too late and has been too limited to prevent a sharp reduction in the role of banks, as traditionally defined, in the U.S. financial system as a whole.

Rigged Money: Beating Wall Street at Its Own Game
by Lee Munson
Published 6 Dec 2011

Want to know something more outrageous? The firm sent out a letter to all of their clients that held individual retirement accounts (IRA) accounts that year. It was a friendly letter informing them that their money market fund, which was where excess cash in the brokerage accounts was held, would be changed over to the “Bank Sweep” feature. On the surface this sounded great. You would have FDIC insurance on what was before just a money market fund, not insured by anything but the assets in that fund. But what was really happening? The brokerage firm was switching tons of assets from the brokerage side to the banking side to boost the bank’s deposits.

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You can’t concentrate all of your money into one illiquid sector of the market just because the rates are above normal. They are high for a reason. Here is the classic rigged system where well-meaning people rig themselves. In order to keep up with the competition during the housing bubble, credit unions had to attract more money from depositors to make loans. They juiced up returns like banks and money market funds with questionable pools of residential mortgages. We know the rest of the story. So, after the warm and fuzzy people-before-profits system was in place, it rigged itself out of billions of dollars and had to be bailed out just like the evil for-profit bankers. This doesn’t mean you shouldn’t support your local credit union if you have the opportunity.

The Money Machine: How the City Works
by Philip Coggan
Published 1 Jul 2009

To distinguish them from the retail markets, the money markets are often known as the wholesale markets and the deposits or bills involved are usually denominated in large amounts. A typical deal might involve a loan of tens of millions of pounds. Investors in the markets tend to be anyone with short-term funds – banks, companies and fund management companies. Retail investors can get involved via money market funds – unit trusts which offer returns that are competitive with bank and building society accounts. This is a huge business which normally works very well, but broke down spectacularly in the summer of 2007. Transactions in the money markets have traditionally been in the form of either deposits or bills.

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Foreign investors can quickly withdraw their funds if they are worried about the UK economy. The flight of this so-called ‘hot money’ can put real pressure on a government. The money markets were at the heart of the credit crunch. Banks became reluctant to lend to each other, and outside investors (such as money market funds) were also unwilling to lend to banks. The result was that Libor rose sharply. Instead of being a few hundredths of a percentage point above base rates, Libor was two or three percentage points higher. This raised the cost of borrowing for everyone, and prompted central banks to lend directly in the money markets to try to ease the pressure.

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The hope is that a diversified mix of such assets can deliver better returns than government bonds, but with less volatility than equities. The spare cash of the investment institutions goes into the money markets. Although their immediate outgoings are usually met by the premiums and contributions, the institutions still need liquid funds to meet any disparities. So they invest in bank certificates of deposit and money market funds. At certain times, when shares seem unsafe investments, the proportion invested in the money markets increases. OVERSEAS INVESTMENTS Nowadays, institutional portfolios are very international. In 1979, the government abolished exchange controls. This allowed the institutions to invest substantial sums abroad.

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century
by Vicki Robin , Joe Dominguez and Monique Tilford
Published 31 Aug 1992

◆Checking accounts. ◆Savings certificates or certificates of deposit. ◆ U.S. savings bonds (including that one you got as a graduation gift and have since forgotten). ◆Stocks. List at current market value. ◆Bonds. List at current market value. ◆Mutual funds. List at current market value. ◆Money market funds. List at current market value. ◆Brokerage account credit balance. ◆Life insurance cash value. Fixed Assets In listing these, start with the obvious: the market value of your major possessions—e.g., your house, your car (or cars). Contact a realtor for the current market value of your house.

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A dispassionate and compassionate attitude can go a long way toward making this step truly enlightening—i.e., able to lighten the physical and emotional loads you’ve been toting around for so many years. CHECKLIST FOR CREATING YOUR BALANCE SHEET Assets, Liquid Cash on hand Savings accounts Checking accounts Savings certificates or certificates of deposit U.S. savings bonds Stocks Bonds Mutual funds Money market funds Brokerage account credit balance Life insurance cash value Assets, Fixed House Vacation home Car(s) Furniture Antiques Art Clothes Sound system TV(s), DVD(s) Wedding dress Shoes/handbags Lamps Jewelry Debts owed you Security deposits Computer(s), printer Sports equipment Bicycle/motorcycle Silverware Kitchen: refrigerator, stove, microwave Power tools Digital camera, video camera Liabilities Bank loans School loans Credit-card debts Loans from friends Unpaid bills: medical, dental Balance on house Balance on car Other time payments With the completion of this step you have entered the here and now.

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◆Cheapest availability—no middlemen, no commissions, no loads. ◆Duration—the range of maturities available is extensive; you can buy a note or bond that will mature in a few months or one that won’t come due for thirty years. ◆Absolute stability of income over the long run—ideal for FI. Avoids the income fluctuations that would occur with money market funds, rental real estate, etc. Treasury Bonds Treasury bonds are the ideal investment vehicle for FIers with a low risk tolerance because they protect principal, provide a steady stream of income and are relatively easy to understand. In addition, they are exempt from local and state taxes, can be bought and sold almost instantly with minimal handling charges, and are protected by the full faith and trust of the U.S. government.

Transaction Man: The Rise of the Deal and the Decline of the American Dream
by Nicholas Lemann
Published 9 Sep 2019

Also, GM and other auto companies manage their payments to hundreds of thousands of parts suppliers by borrowing money in the overnight markets—often from money market funds, which are not covered by federal deposit insurance. The same week that Morgan Stanley almost failed, one of the biggest money market funds, the Prime Reserve Fund, announced that it would no longer let depositors withdraw their money at full value. That led to a wave of panicked withdrawals from money market funds, which dried up the overnight lending system, which meant that GM couldn’t pay its suppliers, which meant that they were in danger of failing too.

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Metcalfe, Bob Metcalfe’s law Mexico: factories moved to; immigrants from microeconomics; see also corporations Microsoft middle class; corporations as benefit to; corporations as hindrance to; regulation to support; as stockholders; see also Chicago Lawn Middle-earth liberalism Milgram, Stanley Milken, Michael Miller, Merton Mills, C. Wright Mind Dynamics MIT Mitsubishi mobile devices Modern Corporation and Private Property, The (Berle and Means) Modigliani, Franco Moley, Raymond Mondelez money market funds money trust Mont Pelerin Society Moreno, Jacob Morgan, Henry Morgan, J. P.; Morgan Stanley and Morgan, J. P., Jr. Morgan Stanley; bailout of; board of; changes to in 1970s; commercial banks vs.; compensation at; in competition with its clients; corporate clients of; debt of; deregulation and; derivatives and; diversity at; elitism of; expansion of; fixed-income department at; founding of; as global company; government employees from; IPO of; Jensen honored by; junk-bond department of; largest loss at; mergers and acquisitions at; mortgaged-backed securities and; price setting by; prime brokerage at; research department at; shareholders as clients of; Silicon Valley and; size of; syndicate system at; trading at; in 2008 financial crisis Morison, Samuel Eliot mortgages; adjustable-rate; collapse of subprime market of, see 2008 financial crisis; federal involvement in; loan modifications for; predatory; racial politics of; securities backed by; state regulation of; as unregulated; see also 2008 financial crisis Moss, John Musk, Elon mutual funds; inflation and; statistical study of My Years with General Motors (Sloan) Nabisco Nader, Ralph Napster Nashashibi, Rami Nation, The National Automobile Dealers Association National Economic Council National Industrial Recovery Act (NIRA) National Labor Relations Board “Nature of the Difficulty, The” (Berle) “Nature of the Firm, The” (Coase) Nazis; in U.S.

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments
by Charles Goyette
Published 29 Oct 2009

The financial markets reeled as they absorbed all the news. Gold had its biggest one-day move in history on Wednesday, September 17, roaring up $70 in the market, up a total of $84 in after-market trading; Reserve Primary Fund, the nation’s oldest money market firm, “broke the buck,” its share value falling below the $1.00 money market fund standard, thanks to losses from its holdings of Lehman securities; that day the Commerce Department reported housing starts hit a seventeen-year low in August, down 33 percent from a year earlier. In the midst of events, Treasury Secretary Henry Paulson and Ben Bernanke met with President Bush.

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By seven o’clock in the evening, the secretary and the chairman were meeting with congressional leaders to discuss what eventually became the $700 billion taxpayer-funded bailout. The next morning, Friday, September 19, Paulson announced the establishment of a U.S. guarantee program for the money market fund industry, funded with $50 billion from the Exchange Stabilization Fund, a government fund used for currency manipulation. On Saturday, September 20, an overnighted bailout bill was in the hands of lawmakers. It was a simple, three-page, $700 billion package which raised the debt ceiling to $11.315 trillion.

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These may be found at www.wisdomtree.com. There are a couple of things to bear in mind about currency ETFs. Although the expense ratios are reasonably low, generally around 0.4 percent, you will pay a commission to buy and sell them just as you would any other ETF. This can make them an expensive substitute for a money market fund. The interest rate is not fixed but can change from day to day just as does a money market account. Remember that if you invest in a foreign currency ETF in an account here in the United States, you still have an investment in the United States and you should not mistakenly believe you have money out of the country.

The Euro and the Battle of Ideas
by Markus K. Brunnermeier , Harold James and Jean-Pierre Landau
Published 3 Aug 2016

Ireland and Spain in particular were the recipients of substantial bank-intermediated capital flows, which served primarily to fund the construction and acquisition of property. Second, European banks significantly expanded their global activities, raising dollar-denominated funding from US money market funds (MMFs). Moreover, large universal banks became increasingly important market makers on global capital and derivatives markets. This heightened activity engendered a substantial increase in the riskiness of the European banking system. Because the ECB cannot—at least, not without a backup swap line from the US Federal Reserve—provide dollar liquidity to its banks, European banks’ reliance on MMF dollar funding added another dimension of systemic risk.

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But, like a rubber band being gradually stretched, the tension builds until the rubber band—and the repo market—finally snaps. German Landesbanken and French Banks The public in Germany and France was outraged when American-style financial problems appeared in their banks. French banks became very dependent on dollar funding from US money market funds. In Germany, some of the most costly problems appeared in the Landesbanken.6 Public sector banks, such as the Landesbanken in Germany, became active players in the modern banking landscape. Such banks have special principal-agent problems: with their downside risk limited by extensive public guarantees, bank managers have an incentive to take on excessive risks to generate short-term profits.

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To picture more clearly the main thrust of these flows, consider the following stylized example featuring Germany and Spain as our representative core and periphery countries. Spanish banks drew parts of their fund from their domestic deposit base. In the years leading up to the crisis, German financial institutions (banks or money market funds) provided their Spanish counterparts with additional cheap, short-term wholesale funding mostly through the interbank market. Spanish banks then duly extended more loans to domestic borrowers (in particular homeowners), usually at flexible rates (typically at the floating LIBOR/Euribor rate plus some fixed surcharge).

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle
by Diana B. Henriques
Published 1 Aug 2011

The Treasury announced a rescue package for AIG this morning, but unexpected cracks from the impact of Lehman Brothers’ collapse are showing up elsewhere. Today, The Reserve fund, the nation’s oldest money market fund, “breaks the buck” by reporting a net asset value of less than a dollar a share. The news feeds the growing panic. If this financial crisis can infect even supposedly secure money funds, for decades the middle-class substitute for a bank account, there is no safe haven. At Fairfield Greenwich Group, whose wealthy investors have long thought of Madoff as a sort of plutocratic money market fund, clients are seeking clarity and comfort. Today the group sends out a reassuring “Dear Investor” letter from Amit Vijayvergiya, the chief risk officer.

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The year 2008 challenges 1929 as the most frightening and frenzied in the long history of Wall Street. The Bear Stearns brokerage house has failed. Fannie Mae and Freddie Mac, two US government-sponsored mortgage giants, have been bailed out; the venerable Lehman Brothers firm wasn’t. Within a day of Lehman’s bankruptcy, the nation’s oldest money market fund was swept away by a tsunami of panicky withdrawals. Before that day ended, regulators were scrambling to rescue the insurance giant AIG, fearing that another titanic failure would shatter whatever trust continued to hold the fragile financial system together. People are already furious, shaking their fists at the arrogant plutocrats who led them into this mess.

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It didn’t seem possible for this rule to have been so widely and so catastrophically ignored, even by nonprofit trustees and pension plans with fiduciary obligations. Typically, the failure of a legitimate midsize brokerage firm like Madoff’s would not wipe out every single penny its customers had. Plenty—or, at least, something—would be left in a company pension plan or a bank account or a money market fund. As for the hedge funds, they supposedly catered only to wealthy, sophisticated people who were, by definition, too smart to hazard their entire fortune on one investment. Indeed, this had been one of the reasons for not regulating hedge funds more tightly over the years. Fires, earthquakes, and hurricanes were readily recognized as events that required an emergency response to alleviate human suffering; the Madoff fraud was not.

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by Duff McDonald
Published 5 Oct 2009

The Dow Jones fell by 504 points on Monday, September 15. (Barclays later bought a number of Lehman’s assets, but not the entire firm.) Lehman’s failure set off a chain reaction. Reserve Primary Fund, a $64 billion money market fund that had been heavily invested in Lehman’s debt, broke the buck—its net asset value fell below the crucial level of $1 per share—and nearly collapsed, sparking mass withdrawals. About $500 billion was withdrawn from money market funds in the two weeks that followed Lehman’s collapse. On Tuesday, September 16, the government chose to rescue the insurance giant AIG with an $85 billion loan, just one day after Lehman had been deprived of such largesse.

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It established Dimon as Wall Street’s banker of choice, and buffed JPMorgan Chase’s reputation to such a high shine that the firm was still benefiting a year later, even as its business continued to deteriorate along with the economy. “In the end, it was a tough deal,” recalls the head of asset management, Jes Staley. “With one exception. What it did for our reputation was worth every penny. It was unbelievable. Absolutely.” The result of this enhanced reputation was tangible. The company had $400 billion in money market funds under management at the end of 2007. It took in another $200 billion in 2008 alone. Other divisions experienced similar gains. JPMorgan Chase’s commercial banking division, for example, saw 2008 net income surge 27 percent to $1.4 billion even as recession gripped the country. As Bear had proved, reputation is everything on Wall Street.

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He also repeated, whenever given the chance, that in the era after World War II, banks had accounted for 60 percent of lending in the economy, but by the turn of the twenty-first century that portion had fallen to just 20 percent. The rest was provided by Wall Street and the so-called “shadow banking” industry, which includes hedge funds, money market funds, and creators of securitized debt. The seizing up of credit that crippled the global economy in 2007 and 2008, in other words, could not be explained simply by saying that a bunch of banks decided to stop lending. According to a study by the consultancy Oliver Wyman, bank lending decreased by $400 billion from 2007 to 2008, while capital markets lending fell by $950 billion.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

On September 19, three days after the Reserve Primary Fund announced it would break below a dollar, the Treasury announced that it was insuring all participating money market funds to the full amount of the investor’s balance. The Treasury indicated that it was using the money in its Exchange Stabilization Fund, normally used for foreign exchange transactions, to back its insurance plan. But since the Treasury had only $50 billion in its fund, less than 2 percent of the assets in money market funds, the Treasury would have had to rely on an unlimited line of credit to the Fed to make good on its pledge. The Fed itself created a credit facility to extend nonrecourse loans to banks buying commercial paper from mutual funds,27 and a month later the Money Market Investor Funding Facility was established.

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Indeed, after the close of trading, the Fed announced that it had loaned $85 billion to AIG, avoiding another market-shaking bankruptcy. The Fed’s decision to bail out AIG was a dramatic turnaround, as Chairman Ben Bernanke had rejected the giant insurer’s request for a $40 billion loan just a week earlier. But the crisis was far from over. After the markets closed on Tuesday, the $36 billion Reserve Primary Money Market Fund made a most ominous announcement. Because the Lehman securities that the money fund held were marked down to zero, Reserve was going to “break the buck” and pay investors only 97 cents on the dollar.3 Although other money funds reassured investors that they held no Lehman debt and that they were honoring all withdrawals at full value, it was clear that these declarations would do little to calm investor anxiety.

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On December 16, as conditions continued to worsen, the Federal Open Market Committee reduced the federal funds rate to an all-time low of between zero and 0.25 percent; and at the end of 2013, the funds rate remains at this level, the longest period since World War II that the rate has remained unchanged. Even though the Federal Reserve guarantees on bank deposits and money market funds stopped the liquidity panic, the Fed could not prevent the shock waves that reverberated through the credit markets. While long-term Treasury rates fell substantially, interest rates on non-Treasury debt rose. The spread between the lowest investment-grade corporate bond and the 10-year Treasury reached 6.1 percent in November 2008, the highest since the record 8.91 percent spread in May 1932 that was reached near the bottom of the Great Depression.

I Will Teach You To Be Rich
by Sethi, Ramit
Published 22 Mar 2009

As the number of mutual funds in a 401(k) plan offered to employees goes up, the likelihood that they will choose a fund—any fund—goes down. For every 10 funds added to the array of options, the rate of participation drops 2 percent. And for those who do invest, added fund options increase the chances that employees will invest in ultraconservative money-market funds. You turn on the TV and see ads about stocks, 401(k)s, Roth IRAs, insurance, 529s, and international investing. Where do you start? Are you already too late? What do you do? Too often, the answer is nothing—and doing nothing is the worst choice you can make, especially in your twenties.

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Well, the companies that offer 401(k)s take this to an extreme: They offer a few investment funds for you to choose from—usually the options are called something like aggressive investments (which will be a fund of mostly stocks), balanced investments (this fund will contain stocks and bonds), and conservative investments (a more conservative mix of mostly bonds). If you’re not sure what the different choices mean, ask your HR representative for a sheet describing the differences in funds. Note: Stay away from “money market funds,” which is just another way of saying your money is sitting, uninvested, in cash. You want to get your money working for you. As a young person, I encourage you to pick the most aggressive fund they offer that you’re comfortable with. As you know, the more aggressive you are when younger, the more money you’ll likely have later.

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See Earnings; Raises; Salary Index funds, 155, 156–57, 167, 177–80, 185, 186, 197, 201–2, 209, 211, 212, 258 buying into, 194–95, 198 choosing, 191–94, 198 constructing portfolio of, 188–95 expense ratios of, 157, 178, 192 rebalancing portfolio and, 180, 181, 189, 203–5, 206–7, 209 Swensen allocation model and, 189–91, 192, 195 Inflation, 7, 53, 70, 170, 240, 253, 256 Information glut, 4–5 ING Direct, 51, 62–63 Insurance: car, 18, 31, 248 homeowner’s, 216, 259 life, 216–17 Interest: on bank accounts, 51, 52, 53, 54, 59, 60, 61 on car loans, 248 on mortgages, tax deduction for, 256 on student loans, 220, 221 see also Annual percentage rates International equities, 157, 190, 203 Investing, 9, 11, 12, 69–90, 109, 143–215 active vs. passive management and, 155–58 in art, 182 asset allocation and, 166, 170–72, 175, 180–81, 183–85, 189–91, 202, 208–9 automatic, 162–64, 202–3 concerns about risks of, 164 Conscious Spending Plan and, 106 determining your style of, 160–61, 198 diversification and, 166, 170, 172–75, 181 dollar-cost averaging and, 197 five systematic steps for, 76–77 401(k)s and, 4, 81, 83, 185–86, 189, 198, 201, 209 high-interest savings accounts vs., 69–70 high-risk, high-potential-for-reward, 183 increasing monthly contribution and, 200–201 knowing when to sell and, 211–15 letting your parents manage your accounts and, 222–23 maintaining system of, 200–218 market downturns and, 163 myth of financial expertise and, 143–58 nonretirement accounts and, 77, 78, 79 paying off student loans vs., 220–21 Pyramid of Investing Options and, 167 in real estate, 182, 202, 251, 253–54, 256 rebalancing portfolio and, 180, 181, 189, 203–5, 206–7, 209 Roth IRAs and, 83, 186–95, 198, 209 for specific goal, 215 starting early and, 4–5 summary of advantages of, 81 tax concerns and, 205, 209, 210–11, 215 time to double money and, 187 underperformance and, 212–15 young people’s poor attitudes and behaviors and, 71–75 in your own career, 77 see also Bonds; Index funds; Lifecycle funds; Mutual funds; Stocks Investment brokerage accounts: automatic transfers to, 87, 88, 89, 90, 129, 132, 137, 187, 188, 195 choosing, 86–88 keeping track of, 88 IRAs, 81, 141, 209 see also Roth IRAs j Jenkins, Richard, 107 JLP at AllFinancialMatters, 152 Job offers: multiple, salary negotiations and, 235, 238, 239 negotiating, 236–37 l Ladder of Personal Finance, 76–77 Late fees, of credit cards, 22, 23, 24 Leasing cars, 246 Leverage, 256 Lifecycle funds (target-date funds), 167, 180–85, 186, 189, 203, 205, 211 buying into, 188, 198 choosing, 187–88, 198 Life insurance, 216–17 Loads, of mutual funds, 156, 177 Lynch, Peter, 149 m Malkiel, Burton G., 150 Materialism, 74 Media, personal advice and, 5–6 Millionaires, behaviors of, 73–74 Money-market funds, 4, 170, 186 Moody’s, 150 Morningstar, 148–50, 152 Mortgages, 50, 216, 253, 255, 258 credit scores and, 16–17, 256–57 paying extra on, 77, 258 tax deductions and, 256 Mutual funds, 167, 176–77, 180 active vs. passive management and, 155–58, 177, 178 fees of, 155–56, 157, 163, 176, 177, 178, 179 managers’ inability to predict or beat market and, 144–51, 155, 177, 178 ratings of, 148–50 see also Index funds n Negotiating: with car dealers, 248–49 for job offers, 236–37 for salary in new job, 120, 234–44 Newsletters, market-timing, 147 “Next $100” concept, 128 Nickel (of www.fivecentnickel.com), 208–9 o O’Neal, Edward S., 158 Online banks, 51 checking accounts of, 62, 68 high-interest savings accounts of, 51–52, 53, 54, 59, 62–63, 65, 68, 69–70 Online shopping, 135 Overdrafts, 50–51, 65–67, 110, 116 p Parents, 222–24 managing their kids’ money, 222–23 in severe debt, helping, 223–24 Partners.

The Big Short: Inside the Doomsday Machine
by Michael Lewis
Published 1 Nov 2009

The Fed and the Treasury were doing their best to calm investors, but on Wednesday no one was obviously calm. A money market fund called the Reserve Primary Fund announced that it had lost enough on short-term loans to Lehman Brothers that its investors were not likely to get all their money back, and froze redemptions. Money markets weren't cash--they paid interest, and thus bore risk--but, until that moment, people thought of them as cash. You couldn't even trust your own cash. All over the world corporations began to yank their money out of money market funds, and short-term interest rates spiked as they had never before spiked. The Dow Jones Industrial Average had fallen 449 points, to its lowest level in four years, and most of the market-moving news was coming not from the private sector but from government officials.

…

"It's the first time we're seeing any prices that reflect anything close to like what they're really worth," said Charlie. "We had positions that were being valued by Bear Stearns at six hundred grand that went to six million the next day." By eleven o clock Thursday night Ben was finished. It was August 9, the same day that the French bank BNP announced that investors in their money market funds would be prevented from withdrawing their savings because of problems with U.S. subprime mortgages. Ben, Charlie, and Jamie were not clear on why three-quarters of their bets had been bought by a Swiss bank. The letters U B S had scarcely been mentioned inside Cornwall Capital until the bank had started begging them to sell them what was now very high-priced subprime insurance.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

Since 1900, U.S. banks have tripled their leverage from around four to twelve; they have taken more liquidity risk by using short-term borrowing to purchase long-term assets; and they have focused more of their resources on high-risk proprietary trading.5 The 2007–2009 crisis, in which governments extended the reach of deposit insurance, guaranteed savings held in supposedly uninsured money-market funds, and bent over backward to pump emergency liquidity into all corners of the markets, is likely to induce even more recklessness in the future. Put simply, government actions have decreased the cost of risk for too-big-to-fail players; the result will be more risk taking. The vicious cycle will go on until governments are bankrupt. There are two standard responses to this scary prospect. The first is to argue that governments should not bail out insurers, investment banks, money-market funds, and all the rest: If financiers were made to pay for their own risks, they would behave more prudently.

…

The clearest problem is “too big to fail”—Wall Street behemoths load up on risk because they expect taxpayers to bail them out, and other market players are happy to abet this recklessness because they also believe in the government backstop. But this too-big-to-fail problem exists primarily at institutions that the government has actually rescued: commercial banks such as Citigroup; former investment banks such as Goldman Sachs and Morgan Stanley; insurers such as AIG; the money-market funds that received an emergency government guarantee at the height of the crisis. By contrast, hedge funds made it through the mayhem without receiving any direct taxpayer assistance: There is no precedent that says that the government stands behind them. Even when Long-Term Capital collapsed in 1998, the Fed oversaw its burial but provided no money to cover its losses.

…

“[I]f the market functions normally, it will lead to a soft landing,” he said hopefully. On Thursday the tone from Washington began to change, but less because of the carnage at quantitative funds than because of trouble from Europe: The giant French bank BNP Paribas had suspended redemptions from three internal money-market funds, citing “the complete evaporation of liquidity.” Subprime losses were clearly scaring the markets, and the European Central Bank responded with $131 billion in emergency liquidity. By Thursday afternoon, the Fed’s chairman, Ben Bernanke, had turned his office into a makeshift war room, and his chief lieutenants dialed in from various vacation locations.

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance
by Eswar S. Prasad
Published 27 Sep 2021

As mobile commerce expanded rapidly in China and Alibaba’s dominance increased, the store of cash in Alipay’s holding pool grew substantially. The company set up the Yu’ebao (“leftover treasure”) service, which was in effect a money market fund that benefited shoppers by paying them interest on the funds they deposited with Alipay before being passed on to sellers. This not only increased Alipay’s “user stickiness” but, since the interest rate was higher than for bank deposits, also heightened the attraction of the Yu’ebao service as a virtual wallet. By 2019, the money market fund behind Yu’ebao had about $157 billion in assets. This innovation proved to be an important milestone in Alipay’s evolution into Ant Group, a full-fledged financial services company established in 2014.

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See http://cdn-thweb.tianhongjijin.com.cn/fundnotice/000198_%E5%A4%A9%E5%BC%98%E4%BD%99%E9%A2%9D%E5%AE%9D%E8%B4%A7%E5%B8%81%E5%B8%82%E5%9C%BA%E5%9F%BA%E9%87%912019%E5%B9%B4%E7%AC%AC%E5%9B%9B%E5%AD%A3%E5%BA%A6%E6%8A%A5%E5%91%8A.pdf (in Chinese). A related news report is available at John Detrixhe, “China No Longer Runs the World’s Largest Money Market Fund,” Quartz, January 28, 2020, https://qz.com/1791778/ant-financials-yue-bao-is-no-longer-the-worlds-biggest-money-market-fund/. Sun (2015) describes China’s financial reforms. Ant Financial Cloud’s services are described in Shi Jing, “Alibaba’s Ant Financial Opens Cloud Services,” China Daily, October 16, 2015, https://www.chinadaily.com.cn/business/2015-10/16/content_22204501.htm.

…

The other main features of Libra were left largely unchanged in the revised version. The reserves backing the stablecoins are to consist of a collection of liquid, low-volatility assets, including short-term government securities (at least 80 percent of the reserves) as well as cash, cash equivalents, and money market funds in the underlying currencies. For new Libra coins to be created, there must be an equivalent purchase of Libra for fiat currency and transfer of that fiat to the reserve. The association automatically mints new coins when demand increases and destroys them when demand contracts. Perils and Promises of Libra Will Libra threaten fiat currencies issued by national central banks?

The Curse of Cash
by Kenneth S Rogoff
Published 29 Aug 2016

The problem, emphasized in Princeton professor Steve Goldfeld’s 1976 paper “The Case of the Missing Money” was not hard to ascertain.12 Thanks to a mix of new technologies (the growth of credit cards), financial liberalization (particularly the end of restrictions on the interest rates banks could pay), and deregulation that created new instruments like money market funds, the relationship between Friedman’s notion of “money” and inflation began to fray badly. For a time, the Federal Reserve tried to find a link between money and prices by developing ever more expansive measures of “money,” for example, incorporating money market funds in addition to checking and savings accounts, with the aim of trying to find some notion of money that still had a stable reliable relationship with the price level.

…

One imagines that in a fully electronic world (with all low-income individuals receiving heavily subsidized debit accounts), demand for reserves at the central bank would rise, potentially quite sharply. And this process is hardly exogenous. The government has numerous regulatory levers it can pull, for example, taking more forceful steps than it has in the past to pull the plug on money market funds, which in the current environment remain a regulatory end-around. In the extreme case, the government could adopt a version of the 1930s “Chicago plan,” which would essentially allow banks to issue money-like instruments only if they were 100% backed by government debt, which presumably can include central bank reserves.10 The name relates to Chicago economists Henry Simon, Frank Knight, Milton Friedman, and Irving Fisher (the last actually a Yale professor), who advocated the idea of “narrow banking” to mitigate moral hazard problems and eliminate bank runs (assuming that the government itself is fully solvent).

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy
by Daniel Gross
Published 7 May 2012

As credit markets reflated, Maiden Lane recovered sufficient value and income from those assets to pay down the debt—and turn a profit for the Federal Reserve. By the end of 2011 the $30 billion loan had been reduced to $4 billion, and Maiden Lane still had assets worth about $7.2 billion. The week that Lehman Brothers failed, the Treasury Department started a program to guarantee the $3.4 trillion money market fund industry. It collected $1.2 billion in fees from operators of money market funds and didn’t pay a single claim before the guarantee was lifted in September 2009. In November 2008 the Federal Deposit Insurance Corporation, an independent agency ultimately backstopped by taxpayers, threw a huge lifeline to the banking industry by offering to guarantee the debt of financial services companies—for a fee.

…

Corp., 91–92 Linden, Greg, 140 LinkedIn, 71, 203–4 liquefied natural gas (LNG), 105–6 literary works, 127–28 Living Social, 203 Lloyds, 38–39 loans, lending, lenders, 4, 79, 133, 180, 221 easy money and, 9–10 efficient consumers and, 189–90 FDI and, 83, 85, 90, 93–94 restructuring and, 45, 47–51, 55 timely policy decisions and, 33–36, 38, 40–42 see also debt; mortgages London, 19, 23, 61, 82, 144 “Long View on Housing, The,” 220 Los Angeles, Calif., 84, 113–14, 126, 144–45, 171 efficiency economy and, 67–68 exports and, 114, 122–23 Loughlin, Michael, 49 McCarthy, Timothy, 67 McDonald’s, 83, 95, 123, 152, 199, 202 inports and, 137, 141, 143–44 McKinsey & Company, 19, 62, 72, 225 Mack Molding, 67 MacLeod, Andrew, 159–60 McLernon, Nancy, 96 Macroeconomic Advisers, 220 Made in America, Again (Sirkin et al.), 166–67 Magaziner, Ira, 70 Magnolia Bakery, 144–45 Magrath, Joan, 67 Maiden Lane transactions, 32–33, 36 Major League Soccer, 126 Mak, Paul, 142–43 Malinowski, Diva, 161–62 Malkin Properties, 69–72 management consulting, 61 Mankiw, Gregory, 193 manufacturing, 20, 26 of autos, 21, 26, 79, 134–36, 173–74, 210, 227 efficiency economy and, 61–62, 64, 67–68, 77–80, 178, 227 employment and, 166–68 exports and, 98–99, 107, 109–10, 112, 116 factory closings and, 9, 15, 79 FDI and, 82–83, 85–91, 96–97 inports and, 134–36, 140, 227 North Dakota and, 159–60 recoveries and, 18, 21 reshoring and insourcing of, 164–78 restructuring and, 45, 51 supersizing and, 199–201, 211 Marbury, Stephon, 126–27, 227 Marcellus Shale, 79, 86 Marchionne, Sergio, 87 Marfrig, 95 markets, 5, 7, 198–99, 221, 224 autos and, 41–42, 79, 192 for credit, 33–34, 36, 43, 49 efficiency economy and, 62–63, 68, 70–71, 75, 79, 227 efficient consumers and, 190–93 employment and, 53–54, 62–63, 167–68, 190, 204 exports and, 99, 105, 112–13, 116, 121–22, 127, 129–31, 154–55, 159 FDI and, 82–84, 86–88, 90, 93–94 forecasts and, 17–18, 28 global, 22, 106 in history, 24–25 and housing and real estate, 12, 18, 42, 53–54, 70–71, 84, 105, 111, 156, 171, 191, 212 inports and, 133–34, 136–40, 146 North Dakota and, 154–56, 159, 161–62 recovery and, 21, 215–16 restructuring and, 48–51, 54, 136 supersizing and, 199, 201–4, 206 timely policy decisions and, 31–36, 41–43 see also emerging markets; stocks, stock markets Mary Kay, 132, 141–43, 227 Mayer, Christopher, 212 MDU Resources, 152–53 Meeker, Mary, 21–22 Mercer Consulting, 168 Merrill Lynch, 47–48, 53 methane gas, 66 Mexico, 65, 89, 154, 159 exports and, 100, 104, 122 FDI and, 84–85 inports and, 138, 145 and reshoring and insourcing, 172–74 supersizing and, 202–3 Miami, Fla., 2, 82, 89, 91, 95, 144 Michigan, 15, 118–19, 135–36, 169, 174 Microsoft, 143, 160 middle class, 20, 25, 94, 127, 144 Middle East, 21, 203, 228 exports and, 108–9, 112–13, 123 inports and, 132, 145 Millennium Bulk Terminals, 103 Millward Brown, 143 Milner, Yuri, 84 Mittleider, John, 154 Moinian Organization, 94 monetary policy, 19, 30, 32 money market fund industry, 33–34 Moody’s, Moody’s Analytics, 1, 31, 190, 207 Morgan Stanley, 21–22, 37, 53, 74 mortgage-backed securities, 34–36 mortgage equity withdrawal (MEW), 54, 56 mortgages, 2, 12, 24, 156, 164, 212, 219, 225 efficient consumers and, 190–91 and Fannie Mae and Freddie Mac bailout, 42–43 refinancing of, 34–35, 54, 190 restructuring and, 45, 50, 53–55, 57–58 subprime, 16–18, 39, 82 timely policy decisions and, 30, 32, 34–36, 39, 42–43 Motion Picture Association of America, 128 Mountain Area Information Network (MAIN), 209–10 Mubadala Healthcare, 145 Murck, Christian, 166–67 Murphy, Roger, 169 MVP RV, 96–97 National Foundation for American Policy, 117 natural gas, 79, 86, 102 exports of, 105–6 in North Dakota, 151–53, 157 NBC/ Wall Street Journal poll, 3 NCR, 174–76, 178 Ness, Ron, 152 Nest Learning Thermostat, 195–96 Netherlands, 14, 81–82, 86, 198 networks, networking, 66, 71, 77, 96, 176, 197 supersizing and, 199, 201–4, 206–9, 211–13 New Deal, 14, 18 New England Smart Energy, 187–88 New Jersey, 50, 111, 211–12, 216, 225 New Jersey Nets, 85, 126 Newsweek, 3, 15–16, 19, 93, 229–30 New York, 8, 19, 26, 41, 47, 89, 108, 111, 141, 148, 154, 156, 172, 224–25, 228 efficiency economy and, 61, 68–72, 74 efficient consumers and, 192–93, 195 exports and, 118, 121–22, 125, 127 FDI and, 82, 84–85, 92–95 inports and, 144–46 restructuring and, 49–50 supersizing and, 204–6, 211–13 New York City marathon, 228 New Yorker, 183–84 New York Federal Reserve Bank, 32, 55–56 New York Stock Exchange, 7, 12–13, 48, 133 New York Times, 6, 9, 19, 72, 85, 100, 119, 141, 174, 178 Next Convergence, The (Spence), 100 Nike, 119, 140, 168–69 9/11, 18, 109, 118, 120–21, 145 Nishimura, Kiyohiko, 29–30 Nixon, Richard, 26, 218 Noah, Timothy, 199–200 Nooyi, Indra, 117–18 Normandy Real Estate Partners, 50 Norris, Floyd, 19 North Dakota, 148–63, 212 agriculture in, 149, 153–58, 162 demographics of, 149, 159–62 economic decline of, 149–50 education in, 153, 157–58, 160–62 efficiency economy and, 158–59 housing in, 150–52, 155–56, 158 oil in, 79, 148, 151–53, 157, 160, 162, 223 sovereign wealth fund of, 156–57 nuclear power, 7, 24, 74, 109 NUMMI, 79 Obama, Barack, 2, 77, 99, 205, 222 economic decline and, 3, 5–6, 10, 15 financial crisis and, 6, 12–13 restructuring and, 54–55 timely policy decisions and, 30, 33, 54–55 “Obama’s Radicalism Is Killing the Dow” (Boskin), 5 Odake, Shin, 93 offshoring, 83, 94, 98, 110, 133, 147, 164, 167–68, 171–73, 175 oil, 26, 100, 102, 165, 217 domestic production of, 79–80, 86, 148, 151–53, 157, 160, 162, 222–23 efficiency economy and, 75, 77, 79–80, 222–23 efficient consumers and, 188–89 FDI and, 86, 95 price of, 15, 75, 77, 153, 172, 188 On China (Kissinger), 127 O’Neill, Jim, 23 Organization for International Investment (OFII), 83, 95–97 output gap, 9 Outrageous Fortunes (Altman), 141 Outsourced, 171 outsourcing, 26, 62, 98, 169, 171–72, 175 Panama Canal, 208 Paris, 68, 109, 137, 144 Parish, Robert, 170–71 Paulson, Henry, 32–33 Peabody Coal, 103 pecans, 100 Peek, Jeff, 47 Peerless Industries, 178 Peisach, Alberto, 88–90 pensions, 91, 132, 181, 216 inports and, 136–37, 147 Pepsi, PepsiCo, 117, 133, 143 Petrobras, 95 Philadelphia, Pa., 65–66, 110 Philadelphia Federal Reserve Bank, 17 Plastic Omnium, 68 Plaza Hotel, 84 politics, politicians, 21–23, 25–26, 61, 148, 163, 167, 218–19, 221 crises and, 15, 29 economic decline and, 5–6 infrastructure and, 205, 211 and reshoring and insourcing, 175–76 timely policy decisions and, 28–31, 40, 43 pools, 185–87 Popper, Deborah Epstein and Frank J., 149–50 Porter’s Fabrication, 176 Poss, Jim, 64–65, 68 Post-American World, The (Zakaria), 19 Poughkeepsie-Highland Bridge, 225–26 poverty, 16, 19, 25, 100, 124, 141, 164, 225 Power, Thomas M., 103 power plants, 7, 72–74 Prague, 139–40, 144 Pratt & Whitney, 108 Principles of Economics (Mankiw), 193 procyclicality, 45, 58, 72–73 production, productivity, 81, 96–103, 215 in agriculture, 100–101, 122 efficiency economy and, 60, 62–63, 65, 73, 78–80, 107, 223–24 efficient consumers and, 181–82, 184, 189, 195 employment and, 163–64, 166–69 exports and, 98–101, 103, 105–7, 109–13, 115–16, 122–23, 131, 226 FDI and, 86–87, 89–90, 96–97 inports and, 131–32, 134–37, 140–43 North Dakota and, 150, 153–54, 157, 159 and reshoring and insourcing, 169–73, 175–79 supersizing and, 199–202, 206–8, 210 U.S. economic importance and, 227–28 profits, profit, 16, 81, 198, 204, 215, 225 efficiency economy and, 62, 65, 76, 78 efficient consumers and, 183, 193–94 exports and, 104, 128–29 inports and, 133, 136, 140, 146–47 restructuring and, 44, 52–53, 58 timely policy decisions and, 33–36, 38–39 Prokhorov, Mikhail, 85 propane, 185–86 Pulaski County, Va., 88–91 Pulpy, 138 Qatar, 108, 145 quantitative easing (QE), 30, 34, 57 railroads, 110, 200, 224–25 FDI and, 13, 81–82, 90, 95 supersizing and, 206, 208–9, 211–12 Ratner, Bruce, 85 Rawlings, 169–70 real estate, 89, 105, 167, 171, 204, 226 efficiency economy and, 68–74, 80 FDI and, 83–85, 92–94, 96 in Japan, 8, 30 restructuring and, 45, 49–51 supersizing and, 212–13 see also houses, housing RealtyTrac, 55 recessions, 9, 13, 23, 26, 180, 221 see also Great Recession recoveries, 4, 9, 17–19, 21, 26, 28, 57, 60, 75, 99, 162, 180, 199, 218, 225 economic pessimism and, 22–23 restructuring and, 45, 51, 80 slowness of, 17–18 strengthening of, 215–17 recycled paper, 107 reengineering, 61–62, 69–70, 113 Regional Plan Association, 211 Regions Financial, 38 regulations, regulation, 2, 10, 16, 19, 25, 29, 52–53, 102, 212 Reid, T.

Bezonomics: How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning From It
by Brian Dumaine
Published 11 May 2020

Facebook’s algorithms keep getting better at collecting and interpreting data on the habits and preferences of the 2.4 billion people on the company’s social media site, which makes it a favorite place for advertisers. Alibaba and its affiliate Ant Financial know so much about their customers’ financial habits that they have created one of China’s largest money market funds. Tencent’s WeChat, which started out as a mobile messaging app, now allows its billion monthly users to hail cabs, book flights, and pay for purchases. It is using the data to move into new industries like health care. All these companies have armies of world-class programmers and data scientists toiling around the world to monetize data.

…

The business model that Amazon is pursuing in many ways resembles that of Ant Financial, the Alibaba affiliate that operates Alipay, the largest mobile payments service in the world, with some 1 billion users. Ant Financial is expanding into credit scoring, wealth management, insurance, and lending. It even offers a money market fund called Tianhong Yu’e Bao, which as of 2018 had $211 billion in deposits. An October 2018 report by the research firm CB Insights pointed out that Ant Financial had a stock market valuation of $150 billion, higher at the time than that of Goldman Sachs, Morgan Stanley, Banco Santander, or the Royal Bank of Canada.

…

Bain estimates that in the U.S. alone, Amazon would save more than $250 million in annual credit card fees. Once Amazon builds a basic banking service, Bain’s Gerard du Toit and Aaron Cheris foresee the e-tailer moving “steadily but surely into other financial products, including lending, mortgages, property and casualty insurance, wealth management (starting with a simple money market fund to hold larger balances), and life insurance.” Bain believes that Amazon could end up with 70 million banking customers—about as many as Wells Fargo—by the mid-2020s. When a company spends more than any other company in the world on R&D, it gets to do a lot of experimentation. Amazon, as we’ve seen, is making major pushes into advertising, health care, and finance, but that’s just the beginning.

Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud
by Ben McKenzie and Jacob Silverman
Published 17 Jul 2023

Hilary Allen, professor of law at American University, wrote a paper in February 2022, just three months before the crash, referring to cryptocurrency and its assorted DeFi products as effectively a new form of shadow banking. Broadly speaking, shadow banking refers to a company offering banking services while avoiding banking regulations. For example, during the sub-prime crisis, money market funds (MMFs) offered customers higher rates of return than they could get in licensed banks. To do so, however, they needed to take on more risk. MMFs began investing in a form of corporate debt called commercial paper. When investment bank Lehman Brothers fell in September 2008, there was a run on what’s called the Reserve Primary Fund, a large $60 billion MMF.

…

When investment bank Lehman Brothers fell in September 2008, there was a run on what’s called the Reserve Primary Fund, a large $60 billion MMF. The fund held only 1.2 percent of its portfolio in Lehman commercial paper, but given the uncertainty in the markets at the time, even this relatively modest allocation caused investors to panic. As the equivalent of a bank run ensued, the government was forced to step in to make sure money market funds didn’t go belly up. While MMFs didn’t cause the subprime crisis, the shadow banking services they provided exacerbated an already fraught situation. Collateralized debt obligations (CDOs), sale-and-repurchase agreements (repos), and asset-backed commercial paper (ABCP) were also part of the pre-2008 shadow banking system—and the attendant crisis.

…

(Griffin and Shams) James, Letitia Jay-Z Kardashian, Kim Keiser, Max KeyFi Keynes, John Maynard Kim, Francis kimchi premium Kindleberger, Charles Kraken Kullander, Tiantian Lagorio, Claudia launchpad scammer Law on the Issuance of Digital Assets (LEAD) Lay, Kenneth Legkodymov, Anatoly Lehman Brothers Levine, Matt Levitt, Arthur Lewis, Michael Lichtenstein, Ilya Lincoln, Blanche Lords of Finance (Ahamed) Lummis, Cynthia Luna (LUNA) Lying for Money (Davies) MacAskill, Will MacKay, Charles Madoff, Bernie Makarov, Igor manias Marcel (digital artist) Marmion, Jean-François Marroquín, Carlos Mashinsky, Alex Mashinsky, Krissy Massad, Timothy McCaffrey, Mike McConnell, Mitch McKenzie, Ben McKenzie, Patrick medium of exchange Mevrex The Mirror Protocol misinformation Money (Goldstein, J.) Moneymaker, Chris money market funds (MMFs) Montell, Amanda Moore, Stephen Morgan, Heather Morgan, J. P. multi-level marketing scheme (MLM) Murdoch, Lachlan Mushegian, Nikolai Musk, Elon Nadkarni, Tushar Nailwal, Sandeep Narrative Economics (Shiller) National Bureau of Economic Research National Cryptocurrency Enforcement Team National League Championship Series naturally occurring Ponzi schemes Neuner, Ran New Republic Newsome, Jim New York magazine New York Stock Exchange (NYSE) New York Times Novogratz, Mike Nuevas Ideas O’Leary, Kevin Omnionn on-chain investigators Ongweso, Edward, Jr.

Why Aren't They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis
by Kevin Rodgers
Published 13 Jul 2016

But if your lenders ever doubt you, then the loans dry up and you will need to sell your house in a hurry to get the money by Monday. Banks had done the equivalent of this to the tune of trillions of dollars. This reliance happened as a result of a trend in the US for individuals to choose to put their cash in money market funds rather than in bank deposits (whereupon the funds would promptly lend short-term to the banks) as well as a growth in the ‘repo’ (repurchase) markets where banks could pledge assets like bonds or CDOs to each other in return for short-term funding. Why had the managers of banks felt comfortable with this precarious situation?

…

To raise cash, banks needed to sell assets like CDOs, but this drove their prices lower and made the banks’ problems worse. The entire market was now feeling the same sense of trapped panic – multiplied 10,000-fold – that Darren and I had felt in the first warning tremor of the Russian crisis. It was LTCM revisited. In an extreme echo of 1998, the complexity of the global interconnections between banks, money market funds, insurance companies and the like, combined with the obscurity of many of the assets that were being funded, meant that lenders were not clear where problems were hiding and so they withdrew funding through fear of the unknown. All of this would never have happened if not for the real underlying weakness in the system: banks were just too leveraged.

…

It’s as if a monstrous balloon has been squeezed in the middle only to bulge at the ends. This image shouldn’t be thought of as applying just to clearing houses. If CCPs are one of the bulges in the balloon, another is the ‘shadow banking’ sector, which is made up of firms (like insurance companies, money market funds or hedge funds) that extend credit but are not banks and are not covered by banking regulations. This sector is extraordinarily large. According to the Financial Stability Board, ‘shadow banking’ assets globally reached $75 trillion in 2013 – about half as big as the entire global banking sector.

Profiting Without Producing: How Finance Exploits Us All
by Costas Lapavitsas
Published 14 Aug 2013

Third, perhaps the most striking aspect of the recent period has been the financialization of the personal revenue of workers and households across social classes.73 This phenomenon refers both to increasing debt (for mortgages, general consumption, education, health) and to expanded holdings of financial assets (for pensions, insurance, money market funds). Household financialization is associated with rising income inequality but also with the retreat of public provision across a range of services, including housing, pensions, education, health, transport, and so on. In this context, the consumption of workers and others has become increasingly privatized and mediated by the financial system.

…

Net external sources for each type of finance are calculated as the difference between the corresponding liabilities and assets. Liabilities Assets Bank credit Depository institution loans n.e.c., other loans and advances, mortgages Checkable deposits and currency, total time and savings deposits, private foreign deposits Market funding Net new equity issues, commercial paper, municipal securities, corporate bonds Money market fund shares, security RPs, commercial paper, Treasury securities, agency- and GSE-backed securities, municipal securities, mortgages, mutual fund shares Trade credit Trade payables Trade receivables, consumer credit Other Miscellaneous liabilities, taxes payable Miscellaneous assets Statistical discrepancy is calculated as a sum of all net sources of finance as percentage of capital expenditures less 100 percent. 2.

…

Net external sources for each type of finance are calculated as the difference between the corresponding liabilities and assets. Liabilities Assets Bank credit loans by private financial institutions, loans by public financial institutions, depositsmoney currency and deposits, deposits with the Fiscal Loan Fund, deposits money Market funding repurchase agreements and securities lending transactions, securities other than shares, shares and other equities, financial derivatives repurchase agreements and securities lending transactions, securities other than shares, shares and other equities, financial derivatives Other loans by the non-financial sector, instalment credit (not included in consumer credit), trade credits and foreign trade credits, accounts receivable/payable, other external claims and debts, others call loans and money, loans by the non-financial sector, instalment credit (not included in consumer credit), trade credits and foreign trade credits, accounts receivable/payable, outward direct investment, outward investment in securities, other external claims and debts, others Statistical discrepancy is calculated as the sum of all net sources of finance as percentage of gross capital formation less 100 percent.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

Banks have invested heavily in long-time bonds. A great volume of short-time money market funds has been diverted to capital uses . . . For the world as a whole, capital is scarce after ten years of war and disorganization. Its apparent abundance is due to abnormal money market conditions, both in the United States and abroad, and to the fact that capital is unwilling to venture into many countries and great industries which badly need it, and which, with a restoration of confidence, would be effective bidders for it. Men who use money market funds at low rates for capital purposes may expect a rude awakening when the tide turns . . .

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Internally, Fed officers called this the “finger in the dyke” strategy, implying that the 100-year flood of bad credit might magically recede in a reasonable period of time. During the year, the financial community’s perception of the crisis would change. Initially problems were thought to be contained in the subprime sector or within specific institutions. Once the equity market collapsed beginning in September, bank deposits took flight, some money market funds had failed, and it became clear a systemic meltdown had occurred. As of March 31, 2008, only $170 billion of what the IMF and others projected as likely losses of nearly $1 trillion on subprime assets had been recognized. The perception of the extent of the credit crisis steadily worsened through the year.

…

Their failure at any other time would have been easily contained. Some 38 percent of total deposits nationwide of $7 trillion were uninsured because they exceed the $100,000 limit, yet less than 15 years ago only 23 percent were.8 With the passage of TARP, the ceiling was reset at $250,000, but this leaves 27 percent of depositor funds unprotected.9 With money market funds losing assets, it is possible that new deposits above the limit could enter the banking system. Since the Great Depression, credit grew relative to GDP by an order of magnitude. Private debt was just 57 percent of GDP in 1944, with only 14 percent of this being mortgages. By 1954 it would be 71 percent, with 28 percent of this financing residential dwellings.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life
by Alexander Green
Published 15 Sep 2008

Successful money management is about the intelligent management of risk. You can’t avoid risk or eliminate it. You have to take it by the horns and deal with it. Every investment choice entails risk. Even if you’re so conservative that you keep all your money in cash investments like T-bills and money market funds—not a terribly good idea, incidentally—you are taking the sizable risk that your purchasing power fails to keep pace with inflation. Yet, terrified of seeing the value of their investments decline even temporarily, plenty of investors do exactly this. This is understandable at first blush.

…

After all, it’s not easy watching your nest egg get scrambled as the stock market spasms in reaction to every piece of bad business news or new government statistic. But relax. History shows that over the long run, you are well compensated for withstanding the vicissitudes of the market. If, by contrast, you seek stability in your investments first and foremost, your returns are guaranteed to be low. Investments in money market funds and certificates of deposit return very little after taxes and inflation. Over the past 80 years, T-bills have returned an average of only 3.8% per year. Sometimes cash returns are considerably worse. In 2004, for example, the average money market yield in the United States was less than 1%, offering a negative real (after-inflation) return on your money.

The Paypal Wars: Battles With Ebay, the Media, the Mafia, and the Rest of Planet Earth
by Eric M. Jackson
Published 15 Jan 2004

While nothing like the X.com plans for a financial supermarket, this optional service enabled users to earn interest on the balance in their PayPal accounts. Although called the PayPal Money Market Fund, the fund was owned and managed by Barclays Bank, an arrangement which allowed our company to again steer clear of activities that could land us with a commercial bank classification. Sacks hoped that providing our users with an interest-bearing incentive to keep cash in PayPal would decrease their reliance on expensive credit cards to fund payments. The one-two punch of international accounts and the money market fund didn’t completely repair all the damage that our brand sustained during the upgrade campaign, but it went a long way toward reassuring our customers that we’d continue to innovate and improve our service at a faster rate than Billpoint.

…

Harris bragged to The Wall Street Journal that he had received CEO offers from more than one hundred startups but chose X.com because he saw it as “a blank canvas upon which to write new rules on the delivery of financial services.”2 X.com also generated some additional buzz toward the end of 1999 with a no-fee, no-minimum balance S&P 500 index fund, the only one of its kind.3 This loss leader product had been rationalized as a way to attract new users who could be up-sold to X.com’s other financial products, including its bond and money market funds, interest-bearing checking accounts, and low APR credit lines. X.com certainly seemed eager to become a financial services supermarket, but Confinity had not seen any sign that it held an interest in following PayPal into person-to-person payments. Yet here it was. Sometime over the previous month, X.com had quietly built an e-mail-based payment feature on top of its existing bank account service and had turned itself into a formidable competitor.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

Investors in the early 1990s had not even a glimmer of today’s f lood of information by means of the computer and the Internet; the instruments bern_c04.qxd 3/23/07 9:02 AM Page 49 Robert C. Merton 49 being traded; the reality of computerized trading in place of exchange f loors; the management of the stock exchanges themselves; the global interlocks; the size, sophistication, and orientation of the larger investors; the proliferation of money market funds, mutual funds, and hedge funds; the development of risk-sharing instruments blurring distinction between the commercial banks or insurance companies and the capital markets; or the transformation of pension funding from defined-benefit to defined-contribution. Even this extended listing of innovations is far from complete.

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As Merton sees it, “You can bern_c04.qxd 52 3/23/07 9:02 AM Page 52 THE THEORETICIANS move from the unrealistic world of theory in which everybody agrees about asset prices and risks to the real world in which everybody agrees to use institutions.” The power of innovative institutions to change markets is clear from just a few examples, which Merton and Bodie place under the heading of “the financial innovation spiral.” Money market funds now compete with banks and thrifts for household savings. Securitization of auto loans and credit card receivables has intensified competition among financial institutions as sources for these purposes. High-yield bonds have liberated many companies from the icy grip of their commercial bankers.

…

For example, Gross had noted that yields on the shortest-term paper in the money markets were significantly lower than the returns available in the six- to twelve-month portion of the market. He smelled a chance for alpha. As he explains the excessively large spread in yields, overnight liquidity was so essential for money market funds, and even some institutional equity managers, these investors had no choice but to accept yields deemed “too low” under more normal circumstances. Liquidity was more important than return in such cases. This insight was just one of several opportunities Gross perceived for outperforming the embedded interest rate in Treasury futures.

Planet Ponzi
by Mitch Feierstein
Published 2 Feb 2012

These things haven’t exactly escaped the attention of the financial markets. All through 2011 there’s been a growing sense of jitteriness‌—‌mirroring to an uncanny degree the anxiety felt in the months between the collapse of Bear Stearns and the Lehman bankruptcy. That nervousness has manifested itself in an acute risk-aversion. American money market funds are pulling their cash out of Europe. Interbank loans have become ever shorter in duration, meaning that ever larger volumes of money have to roll over every week. French banks, indeed, have effectively lost their access to this market. And these things matter. As so often in this book, I find myself making statements that sound boringly technical.

…

Your job, your pension, your savings, your government may come to depend on these things. The disaster scenario is this. A big bank‌—‌let’s say a mythical French one, the Banque des Grandes Baguettes (BGB)‌—‌announces unexpectedly large losses on its sovereign loan portfolio. It has become highly reliant on short-term funding, but money market funds and the interbank market now cut it off completely. BGB is now totally reliant on funding from the European Central Bank, and the ECB in turn comes under acute pressure to force a restructuring or bankruptcy filing. Maybe the ECB caves into that pressure, maybe it doesn’t, but either way the market is in a panic.

…

It’s a rule I urge you to follow yourself. That said, the first and biggest moral of this book is that you need to throw out all the assumptions you’ll have lived with to this point. Sovereign debt is no longer so safe you don’t have to think about it. (Truth is, it never was.) Banks might fail, including large ones. Money market funds may ‘break the buck’‌—‌that is, lose money. Equally, you need to shed some of your Ponzi-ish optimism. House prices have fallen, but they may fall further. Stock market prices have fallen, but they may fall further. Some bond prices have already collapsed, but they could collapse further. The dollar has collapsed against the yen (falling by a third, from $1 = ¥120 in 2007 to less than ¥80 at the time of writing).

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah
Published 26 Feb 2017

Stress tests Assess an institution capital plan and ability to continue providing financial services, without government assistance, following a specified shock Only for banks Living wills Plan on how a SIFI would resolve itself if it failed. Based on that knowledge and in case of failure, the government would use Orderly Liquidation Authority to dismantle the firm so its losses would not affect others Only 1 bank Money market fund rules Stress testing, disclosure, floating NAV, liquidity fee, and redemption gate Conformance period ends on Oct. 14, 2016 Derivatives Dealing/ Securitization Activities Category Rules Targeted Outcome Implementation (as ofJune 2016) Milestones Volker Rule Prohibit entities holding customer deposits from engaging in speculative derivatives activity Conformance period extended to July 21, 2017 Derivatives Clearing Organization Rule Standardized derivatives transactions must be centrally cleared Effective in January 9, 2012.

…

In July 7, 2012, two DCOs are denominated Systemically Important FMU Swaps-related rules for banks and nonbanks Enhanced regulations and increased transparency of derivatives markets regarding trade reporting, capital, and margin requirements for non-centrally cleared derivatives, exchange of electronic platform, cross-border activities Work in progress, with 1/3 remaining Financial Stability and Systemic Risk monitoring Category Rules Targeted Outcome Implementation (as ofJune 2016) Milestones Enhanced Prudential Rules (liquidity, capital, leverage, concentration limits, risk management…) Enhance the stability and resilience of SIFIs Focus on banks, FMUs and money market funds Transparency and harmonization Simplify the US financial regulatory system FSOC, OFR Consumer and Investor Protection Category Rules Targeted Outcome Implementation (as ofJune 2016) Milestones Investment Adviser Registration To protect pensioners; requirement to make the data publicly available, even for exempt advisers, in order to increase transparency and access for prospective investors; created to promote clear information for consumers and protect them from unfair practices; promote fair, efficient, and innovative financial services for consumers; improve access to financial services.

…

Regulating Regulation The period after the crisis has been rife with regulation as bank and market-focused rules have been/are in the process of being implemented, notably in the US and in the EU, e.g., Dodd-Frank Act (2010), Volker Rule (2013), Third Basel Accord (2013), EU Commission’s Liikanen proposals (2012), European Market Infrastructure Regulation (EMIR) (2012), etc.… These regulations target liquidity and collateral requirements, money market funds, taxation, derivatives, and consumer protection rights, among others. As the scope of regulation is large, we will focus on the concept and role of regulation in the context of market players rather than entering the intricacies of specific regulations on different sectors. Markets are often cited to be the whipping boys of regulation.

End This Depression Now!
by Paul Krugman
Published 30 Apr 2012

But as far as the economics are concerned, a bank is any institution that borrows short and lends long, that promises people easy access to their funds, even as it uses most of those funds to make investments that can’t be converted into cash at short notice. Depository institutions—big marble buildings with rows of tellers—are the traditional way to pull this off. But there are other ways to do it. One obvious example is money market funds, which don’t have a physical presence like banks and don’t provide literal cash (green pieces of paper bearing portraits of dead presidents), but otherwise function a lot like checking accounts. Businesses looking for a place to park their cash often turn to “repo,” in which borrowers like Lehman Brothers borrow money for very short periods—often just overnight—using assets like mortgage-backed securities as collateral; they use the money thus raised to buy even more of these assets.

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L., 87 Miami, Fla., 112 Mian, Atif, 47 Minsky, Hyman: financial instability hypothesis of, 43–44, 47 renewed appreciation of, 41, 42–43 Minsky moments, 48, 111, 146 bank runs as, 58 MIT, Billion Prices Project of, 161 monetarism, 101, 135 monetary base, 31, 32, 188 Monetary Control Act (1980), 61 monetary policy, 39, 105, 207 deficit spending and, 135 expansionary, xi, 151, 185, 188 short-term interest rates in, 216–17 “Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis” (Sweeney and Sweeney), 26–27 money market funds, 62 money supply: in babysitting co-op example, 27, 29, 32–33 Federal Reserve and, 31, 32, 33, 105, 151, 153, 155, 157, 183 liquidity traps and, 152, 155 Montgomery Ward, 148–49 Moody’s, 113, 194 moral hazard, 60, 68 Morgan, J. P., 59 Morgan Stanley, 131, 134 mortgage-backed securities, 62, 112, 114 mortgage relief, 53, 126–28, 219–21 Obama administration and, 220–21 mortgages, 30, 93 defaults on, 47–48, 172 foreclosure and, 45, 127–28 real value of, 163–64 subprime, 65, 99 “underwater,” 127, 220 see also household debt Mulligan, Casey, 6 Mundell, Robert, 172 Munk, Nina, 71, 72 Nakamura, Emi, 236 National Bureau of Economic Research, 4 National Institute for Economic and Social Research, 201 National Review, 25 natural experiments, 212, 233, 235 Nebraska, high employment in, 37 net international investment position, 44 Nevada, housing bubble in, 111, 172 New Deal, 38, 50 job-creation programs of, 39 New Keynesians, 103, 104 New Yorker, The, 125 New York Times, 80–81, 151 1930s, economic conditions in, xi Obama, Barack, 150 business confidence and, 95 deficit and, 130, 131, 134, 143 inflation under, 152 spending cuts and, 28, 131, 143 stimulus plan of, see American Recovery and Reinvestment Act and 2012 election, 226 worker redundancy and, 36 Obama administration, 116, 117, 210 and deficit reduction vs. job creation, 225, 228 household debt relief and, 128 and inadequacy of stimulus, 123–26, 130–31, 213 mortgage relief and, 220–21 unemployment and, 110, 117 Occupy Wall Street, 64, 74–75, 76 oil and gas industry, 37 deregulation of, 61 prices in, 159 optimum currency area, 171–72 Oracle Partners, 72 Organization for Economic Cooperation and Development (OECD), 189, 190, 191, 202 O’Rourke, Kevin, 236 Osborne, George, 178, 200, 201 panics, 59 euro as vulnerable to, 182–84, 186 of 1907, 59 in 2008 financial crisis, 4, 63 Parenteau, Rob, 189 Paul, Ron, 150–51 payroll tax credit, 229 Pearl Harbor, Japanese attack on, 38 Perry, Rick, 151, 218 Piketty, Thomas, 77–78, 81–82 Pimco, 131, 134 Pinto, Edward, 65–66 Plosser, Charles, 36–37 policy makers: Austerian influence on, 188–207 influence of financial elite on, 23–24, 96 informed public and, xii lessons of Great Depression ignored by, xi, 50, 92, 189 in 2008 financial crisis, 115–16 politics, politicians: anti-Keynesianism in, 93–96 influence of money in, 63, 77–78, 85–90 lessons of Great Depression ignored by, xi, 50 revolving door and, 86, 87–88 as roadblocks to recovery, 23–24, 123–24, 129, 130–31, 211, 218, 219, 222, 223 Poole, Keith, 88–89 poor, aid to, 89, 120, 144, 216 Portugal: debt crisis in, 18, 175, 175, 178, 186 debt to GDP ratio in, 178, 178 EEC joined by, 168 private debt: European crisis and, 182 overhang of, 39, 52, 53, 93, 163–64 private-equity firms, breach of trust and, 80–81 private sector: saving vs. investment in, 137 spending by, 25–26, 143–44, 235–36 prosperity, unemployment and, 9 pundit’s fallacy, 225 quantitative easing, 193, 218–19 Rajan, Raghuram, 190, 203–4 Reagan, Ronald: defense spending under, 236 deficit under, 142 deregulation under, 50, 60–61, 62, 67–68 inflation under, 152, 161, 162 real business cycle, 103 real estate loans, bad, 68, 80 real gross domestic product (real GDP), 12–14 CBO estimates of, 13–14 in 2008 financial crisis, 13 recessions, 13, 18, 172, 201 historical patterns of, 122, 128–29 long-term effects of, 17 Lucas project and, 102, 103 of 1937, 38 of 1979–82, 13, 31 of 1990–91, 31 of 2001, 31 see also depressions reconciliation, 124, 226–27 recovery, from depression of 2008–, ix–x, 208–22 aggressive action needed in, 216–19, 221–22 deficit and, 212 government spending and, 211–16 housing sector in, 219–21 inadequacy of stimulus in, 108, 109–10, 116–19, 122–26, 130–31, 165, 212, 213, 229–30 inflation and, 219 infrastructure investment and, 215 job creation and, 228–29, 238 lessons of Great Depression and, xi, 20, 22 long-term focus as mistaken in, 15 as moral imperative, 229–30 Obama administration and, 123–26, 210 political roadblocks to, 23–24, 123–24, 129, 130–31, 211, 218, 219, 222, 223 research-based policies for, xi, 212, 217 self-interest and distorted ideology as roadblocks to, 20 slow pace of, 4 supposed lack of projects in, 212, 213–16 will as key to, 20, 217, 218, 219–20 Reinhart, Carmen, 129 repo, 62, 114 Repubblica, La, 188, 196 Republicans, Republican Party, 107, 151, 228 austerity programs espoused by, 190, 218, 227 Big Lie of 2008 financial crisis espoused by, 64–65 extremism in, 19 financial elite and, 88–89 inflation and, 160 job-creation policies opposed by, 227, 228–29 scorched-earth policy of, 123–24, 131 stimulus and, 109 research, economic, 5–6, 10–11 correlation vs. causation in, 83, 198, 232–33, 237 misleading, 196–99 natural experiments in, 212, 233, 235 policies based on, xi, 212, 217, 231–38 “Rethinking Macroeconomic Policy” (Blanchard et al.), 161–63 Return of Depression Economics, The (Krugman), 31, 69, 91 returns on investment, liquidity vs., 57 Reynolds, Alan, 78 Ricardian equivalence, 107 Ricardo, David, 205–6 Riedl, Brian, 25–26, 29, 106 risk taking, 43, 54, 55 deregulation and, 61–62, 63–64, 80 limiting of, 60 Rogoff, Kenneth, 129 Romer, Christina, 104, 107, 108, 228, 237–38 Romney, Mitt, 80, 226, 227 “Rooseveltian resolve,” 217, 218, 219–20 Rosenthal, Howard, 88–89 Rubin, Robert, 86 Saez, Emmanuel, 77–78, 81–82 Samuelson, Paul, 43, 93 Sargent, Greg, 225 savings, personal: depletion of, 4, 10, 83–84 and spending drop, 41, 136 savings, private sector, investment vs., 137 savings and loan crisis (1980s), 60, 67–68, 72–73, 80 Say’s Law, 25, 106 Schäuble, Wolfgang, 23 Scheiber, Noam, 228 Schiff, Peter, 150 Schumpeter, Joseph, 204–5 self-esteem, unemployment and, 10–11 Senate, U.S.: Banking, Housing, and Urban Affairs Committee of, 85 filibusters in, 123 reconciliation in, 124, 226–27 and 2012 election, 226 see also Congress, U.S.; House of Representatives, U.S.

China's Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business
by Edward Tse
Published 13 Jul 2015

What it needs through the rest of this decade and beyond is investment that raises productivity. Ultimately, commercial financial organizations will be the best judges of where money should be directed. To attract the funds of Noah’s investors or of the ordinary savers putting their money into Yu’e Bao, Alibaba’s online money-market fund, these companies will have to be better at finding the right investment opportunities. With the rise of private finance businesses, we are seeing the start of this shift. HELPING HEALTH CARE A similar process is unfolding in health care. Although China’s system will remain very much a publicly run system for the foreseeable future, private companies are extending the quality and range of services.

…

Alibaba’s total loan book stood at $2 billion: See “Alibaba’s Small Business Lending Moves Ahead,” Wall Street Journal, July 5, 2013, available at http://online.wsj.com/news/articles/SB10001424127887324260204578587451309343978 (accessed August 28, 2014). What made Yu’e Bao attractive: China’s central bank, the People’s Bank of China, restricts bank-demand deposits to paying annual interest of less than 1 percent, and time deposits to a maximum of just over 3 percent. Yu’e Bao, which can invest in higher-interest-earning money-market funds, has offered returns of up to 6 percent. Yu’e Bao’s arrival, followed shortly after by similar products from China’s two other Internet giants, Baidu and Tencent: See Gabriel Wildau, “China Banks Strike Back Against Threat from Internet Finance,” Reuters, February 23, 2014, available at http://uk.reuters.com/article/2014/02/23/uk-china-banks-online-idUK BREA1M12I20140223 (accessed February 25, 2014).

Capital Ideas: The Improbable Origins of Modern Wall Street
by Peter L. Bernstein
Published 19 Jun 2005

This was the motivating force of the revolution that shaped the new Wall Street. ••• Even an incomplete list of the innovations that have emerged since the mid-1970s reminds us of how profoundly the present differs from the past. The unfamiliarity of some of the new terminology suggests the magnitude of that break with tradition. Today there are money market funds, bank CDs for small savers, unregulated brokerage commissions, and discount brokers. There are hundreds of mutual funds specializing in big stocks, small stocks, emerging growth stocks, Treasury bonds, junk bonds, index funds, government-guaranteed mortgages, and international stocks and bonds from all around the world.

…

The first sales material for Leland-Rubinstein’s portfolio insurance product contained an example of protection against five market moves of 5 percent, with the protection in force until the maximum number of moves had taken place. Rubinstein set out to prove to the world that this splendid product really worked: he tried it out with his own money, shifting between a money market fund and a mutual fund that tracked the S&P 500 Index over a period of six months. Everything worked out exactly as expected. The experiment was so successful that Fortune magazine published an article about it. Marketing began in earnest in 1979. Armed with a letter from Barr Rosenberg endorsing the validity of the principles behind the product, Leland visited a number of bank trust departments in the East and Midwest, including Morgan Guaranty in New York and American National Bank in Chicago.

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See also specific theories and types of securities competitive disaster avoidance invisible hand linear regression/econometric seasonal fluctuations stochastic process Mathematical economics Mathematical Theory of Non-Uniform Gases, The Maximum expected return concept McCormick Harvester Mean-Variance Analysis Mean-Variance Analysis in Portfolio Choice and Capital Markets (Markowitz) “Measuring the Investment Performance of Pension Funds,” report Mellon Bank Merck Merrill Lynch Minnesota Mining MIT MM Theory “Modern Portfolio Theory. How the New Investment Technology Evolved” Money Managers, The (“Adam Smith”) Money market funds Mortgages government-guaranteed prepaid rates on “‘Motionless’ Motion of Swift’s Flying Island, The” (Merton) Multiple manager risk analysis (MULMAN) Mutual funds individual investment in performance analysis of portfolio management and Value Line National Bureau of Economic Research National General Naval Research Logistics Quarterly New School for Social Research New York Stock Exchange volume of trading New York Times averages “Noise” (Black) Noise trading asset prices and inefficiency of October, 1987, crash OPEC countries Operations Research Optimal capital structure Optimal investment strategy: see Diversification; Portfolio(s), optimal “Optimization of a Quadratic Function Subject to Linear Constraints, The” (Markowitz) Optimization theory Options call contracts expected return on implicit out-of-the-money/in-the-money pricing formulas put valuation Options markets over-the-counter Pacific Stock Exchange Paul A.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

Paul Asquith, a professor at Harvard Graduate School of Business, with his colleagues David Mullins and Eric Wolf, found that junk bond default rates were higher than previously stated. Around 30 percent of all junk bonds issued in 1977–9 had defaulted or been subject to a distressed exchange. Lipper Analytical Services, an investment firm, found that over 10 years junk bonds provided lower returns than government bonds, earning the same as money market funds. Altman published new research reaching similar conclusions.26 As Laurence J. Peter, author of The Peter Principle, stated: “Facts are stubborn things, but statistics are more pliable.” Fallen Angels Milken put Hickman’s theories to work at Drexel Harriman Ripley, an investment bank that had once partnered with JP Morgan.

…

In fact, they were complex, highly financially engineered derivatives, where the higher return required taking the risk that none of seven or eight companies would default or file for bankruptcy. The SPV invested the money subscribed by investors in high-quality AAA-rated securities, initially investments in money market funds. The investments secured a credit derivative known as a first-to-default (FtD) swap. The investors received an annual fee that together with the interest on the money invested gave the investors the higher return. The investors agreed to make a contingent payment if any one of the identified firms defaulted.

…

Assuming low or zero default correlation, the risk of any one entity within a basket of eight well-rated firms defaulting is significantly higher than for any single entity defaulting. A FtD basket based on investment grade companies may be equivalent to noninvestment grade credit risk. Over time, instead of placing the investor’s money in money market funds, the cash was invested in CDOs and CDO2s, arranged and sold by Lehman, adding to the risk of the arrangements. In Hong Kong, in accordance with local superstitions, no series of Minibonds were issued with the number 4, considered unlucky in Chinese culture. Advertisements and flyers prominently featured symbols of potency, luck or profit—tigers, rhinoceroses, and whales.

Where Does Money Come From?: A Guide to the UK Monetary & Banking System
by Josh Ryan-Collins , Tony Greenham , Richard Werner and Andrew Jackson
Published 14 Apr 2012

Broad money M1 Notes and coins in circulation with the non-bank public plus sterling current accounts. M2 M1 plus sterling time deposits with up to three months’ notice, or up to two years’ fixed maturity. M3 M2 plus repurchase agreements, money market fund units, and debt securities up to two years – estimated by the European central bank (ECB) for the UK to be consistent with the M3 measure used by the ECB for the euro area. M4 M3 plus other deposits at UK banks or building societies. Further complications arise from the capacity of modern capitalism to continuously create new forms of credit/debt that are not perfectly liquid.3, 4 Economist Charles Goodhart argued that defining money was inherently problematic because whenever a particular instrument or asset was publicly defined as money by an authority in order to better control it, substitutes were produced for the purposes of evasion5 (this is known as ‘Goodhart’s law’).6 We revisit the question of where to draw the line around ‘money’ later in Chapters 5 and 7.

…

Box 11: The ‘shadow banking’ system The ‘shadow banking system’ is a loose term used to cover the proliferation of financial activities undertaken by banks off their balance sheets, largely beyond the reach of regulation. No solid definition yet exists, but it conventionally includes non-depository money market funds and the use of securitisation and credit derivatives by many institutions as well as private repo transactions.16 What all these have in common, aside from their extraordinary expansion over the last decade, is the creation of forms of credit that have no relationship to traditional banking.

The Millionaire Next Door: The Surprising Secrets of America's Wealthy
by Thomas Stanley and William Danko
Published 15 Nov 2010

Without Social Security benefits, almost one-half of Americans over sixty-five would live in poverty. Only a minority of Americans have even the most conventional types of financial assets. Only about 15 percent of American households have a money market deposit account; 22 percent, a certificateof deposit; 4.2 percent, a money market fund; 3.4 percent, corporate or municipal bonds; fewer than 25 percent, stocks and mutual funds; 8.4 percent, rental property; 18.1 percent, U.S. Savings Bonds; and 23 percent, IRA or KEOGH accounts. But 65 percent of the households have equity in their own home, and more than 85 percent own one or more motor vehicles.

…

Thus they tend to be less self-reliant when it comes to planning their investments in a way that will facilitate accumulating wealth. There is another issue to consider in the planning equation: UAWs spend less time planning their investments than do PAWs, in part because of the nature of their investments. UAWs consider cash/near cash and equivalents, such as savings accounts, money market funds, and short-term treasury bills, to be investments. UAWs are nearly twice as likely as PAWs to hold at least 20 percent of their total wealth in cash/near cash. Most of these cash categories are federally insured. Most are easily accessed when consumption needs arise. And, of course, it takes less time to plan cash-related investments than it does to allocate wealth the way PAWs tend to do.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

On Tuesday, September 16, the Reserve Primary Fund, a big money market mutual fund that had bought more than $700 million in short-term debt issued by Lehman, which was now worthless, announced that its customers would no longer be allowed to withdraw cash from their accounts because it didn’t have enough to pay them all: its net asset value had fallen below a dollar a share. Since the founding of the first money market fund in 1970, only one other fund had “broken the buck.” Fearing that other firms would find themselves in a similar position to the Reserve Primary Fund, private and institutional investors began pulling their money out of money market funds, raising the possibility of a full-scale run on the industry. In just a few days, almost $150 billion was withdrawn. This was a truly alarming development, and not just for the mutual fund industry. With about $3.5 trillion in assets, money market funds are major players in the financial system. Through investing in commercial paper and other short-term debts, they provide day-to-day funding for many financial and nonfinancial firms.

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future
by Ashlee Vance
Published 18 May 2015

But if the only way for them to spend money or access it in any way is to move it to a traditional bank, that’s what they’ll do instantly. The other thing was the PayPal money market fund. We did that because if you consider the reasons that people might move the money out, well, they’ll move it to either conduct transactions in the physical world or because they’re getting a higher interest rate. So I instituted the highest-return money market fund in the country. Basically, the money market fund was at cost. We didn’t intend to make any money on it, in order to encourage people to keep their money in the system. And then we also had like the ability to pay regular bills like your electricity bill and that kind of thing on PayPal.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

In this case, the foreign-currency-denominated feeder funds have a currency hedge in addition to their investment into the master fund. Another use of this structure is to have feeder funds at different risk levels. If the master fund has a volatility of 20% per year, one feeder fund might have the same volatility while another has half the volatility. The lower-risk feeder simply invests half its capital in a money market fund and the other half into the master fund, thus realizing half the risk. Figure 1.1. The master–feeder hedge fund structure. The master fund has a pool of money, and this is where all the trades are carried out. It has an investment management agreement (IMA) with the management company to provide investment services, including strategy development, implementation, and trading.

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The cash proceeds from the sale are assets, but they are held as collateral by the securities lender. In addition, the securities lender requires additional cash as margin requirement and, hence, the hedge fund must use equity capital “supporting margin requirements for short positions.” Lastly, the hedge fund has additional equity invested in cash instruments (e.g., money market funds, Treasury bills, or margin excess with prime brokers), as seen in the balance sheet. This additional equity makes it able to sustain losses without having to immediately liquidate positions. Hedge funds also gain economic leverage by using derivatives and, though this economic leverage may not formally show up on the balance sheet, their notional exposures should also be considered when leverage is estimated.

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Even if the hedge fund successfully adds cash, repeated margin calls are a sign of problems and can eventually lead the prime broker to terminate the arrangement or increase margin requirements. Hence, hedge funds naturally try to keep excess margin capital. (Some hedge funds have all their capital in their margin account, while others have most of their cash in a money market fund, moving it into the margin account as needed.) The overall economics of funding a portfolio are quite general, but the specific institutional arrangements depend on the type of security. Let us briefly review the main forms of leverage, that is, the main ways that the overall economic principles discussed are put into practice

The Global Minotaur
by Yanis Varoufakis and Paul Mason
Published 4 Jul 2015

Secretary Paulson, whose antipathy to Lehman’s CEO since his days at Goldman Sachs is well documented, says a rare ‘No’. Lehman Brothers thus files for bankruptcy, initiating the crisis’s most dangerous avalanche. Monday, 15 September 2008: the day Lehman Brothers dies. Lehman’s has been one of the main generators of CDOs. An independent money market fund holds Lehman CDOs and, since it has no reserves, it must stop redeeming its shares. Depositors panic. By Thursday a run on money market funds is in full swing. In the meantime, Merrill Lynch, which finds itself in a similar position, manages to negotiate its takeover by Bank of America at $50 billion, again with the taxpayer’s generous assistance – assistance that is provided by a panicking government, following the dismal effects on the world’s financial sector of its refusal to rescue Lehman Brothers.

Twilight of the Elites: America After Meritocracy
by Chris Hayes
Published 11 Jun 2012

Staying behind as one of the only remaining members of the President’s original White House inner circle was his longtime friend from Chicago Valerie Jarrett. Before coming to the White House, Jarrett had been CEO of the property management firm Habitat Co., which had earned millions off government contracts developing low-income housing to replace the dismantled Chicago Housing Authority projects. When entering office, she reported a money market fund that held between $1 million and $5 million. The point is this: The 1 percent and the nation’s governing class are more or less one and the same. If you are a member of the governing elite and aren’t a millionaire, you’re doing something wrong. And if the divide between the 1 percent and the 99 percent really is a defining feature of our politics, how can the 99 percent trust that same wealthy, governing elite to zealously pursue its interests?

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Economy Chief Had Inside View of Wall Street,” International Herald-Tribune, April 7, 2009. 33 Axelrod reported income of $1.5 million: Cited in “All the President’s Millionaires: Disclosure Reports Show That Many in Barack Obama’s Inner Circle Have More Than Just a City in Common,” Chicago Tribune, April 9, 2009. 34 Valerie Jarrett … reported a money market fund that held between $1 million and $5 million: See “White House Wealth: President Barack Obama’s Team Virtually All Chicago Millionaires,” Chicago Tribune, April 9, 2009. 35 “Even the supporters of apartheid were the victims of the vicious system”: Desmond Tutu, No Future Without Forgiveness (New York: Doubleday, 1999), p. 103. 36 “The point about Davos is that it makes everyone feel wildly insecure”: Anya Schiffrin, “Jealous Davos Mistresses,” Reuters, January 25, 2011. 37 “You have met the phenomenon of an Inner Ring”: See C.

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

Instead, banks lend as much as they can — limited only by demand — and then borrow to meet regulatory requirements. So, a bank might lend as much as it can to borrowers, before borrowing the capital it needs to meet capital requirements from an investor or another bank by the end of the day. One source of funding for the banks in the pre-crisis period were the so-called “money market funds” (MMFs). Wealthy savers seeking out higher interest rates than were available in traditional bank accounts deposited their cash in MMFs, which were seen as equivalent to normal bank deposits. Investors could take out their cash at any time — the only catch was that MMFs weren’t guaranteed by the state, but this was far from the minds of most investors before 2007.

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‘Financialisation’ and the Monetary Circuit”, University of the West of England Economics Working Paper 1602 http://eprints.uwe.ac.uk/28552/1/1602. pdf; Moosa, I. (2010) “Basel II as a Casualty of the Global Financial Crisis”, Journal of Banking Regulation, vol. 11; Tobias, A. and Hyun Song, S. (2009) “The Shadow Banking System: Implications for Financial Regulation”, Federal Reserve Bank of New York Staff Paper 382; Adrias, T. and Ashcraft, A. (2012) “Shadow Banking Regulation”, Federal Reserve Bank of New York Staff Report 559 12 This account draws on: Tooze (2018); Wray (2015); McCabe, P. (2010) “The Cross Section of Money Market Fund Risks and Financial Crises”, Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. 13 This account draws on: Tooze (2018); Michell (2016); Lysandrou and Shabani (2018) “The Explosive Growth of the ABCP Market Between 2004 And 2007: A ‘Search for Yield’ Story”, Journal of Post-Keynesian Economics, vol. 41; Adrian, T. (2013) “Repo and Securities Lending’, Federal Reserve Bank Of New York Staff Reports 529; Acharya, V. and Schnabl, P. (2010) “Do Global Banks Spread Global Imbalances?

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle
by Dinny McMahon
Published 13 Mar 2018

More importantly, it has evolved in a way that now threatens the very sustainability of China’s economic miracle. 5 The Island of Misfit Toys CHINA’S FINANCIAL SYSTEM is a little like the Island of Misfit Toys in Rudolph the Red-Nosed Reindeer, the 1964 animated Christmas classic. From a distance everything looks familiar, but up close it becomes clear that things aren’t built the way you might expect. For example, China’s money-market funds are managed not by storied investors like Vanguard and Fidelity but by China’s equivalent of Amazon and Google. Insurance companies generate most of their premiums not from selling insurance but from selling investments that mature after only a year, insure nothing, and promise a fixed return a little higher than bank deposits.

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The combination mixes risk and return. Loans to banks are extremely safe but have low interest rates; loans to companies are more risky but pay more. Put them together and you get a pretty safe investment with a decent return. Most of the fund-management industry—whether trusts, insurance companies, securities firms, money-market funds, or P2P portals—deploy their resources in similar ways. They’re a source of credit that has emerged as an alternative to traditional bank loans. Together they constitute a shadow-banking system. What We Do in the Shadows Broadly speaking, shadow banking includes any nonbank credit that isn’t subject to the same careful, thoughtful regulation that governments give to ordinary bank lending.

Mastering the Market Cycle: Getting the Odds on Your Side
by Howard Marks
Published 30 Sep 2018

(“Open and Shut”) I truly believe a system meltdown—with ramifications like those seen in the Great Depression—could have occurred. Former Treasury secretary Timothy Geithner’s book Stress Test bears this out. Fortunately, however, the U.S. government took steps that turned the tide. These included the guaranteeing of commercial paper, mentioned earlier, as well as of money market funds. The bank bailouts showed that help was available, and the September 2008 bankruptcy of Lehman Brothers suggested that the government was differentiating between the banks that were worth saving and those that weren’t. Whereas panicky market participants were convinced that Morgan Stanley was next in line for collapse after Lehman—and that Goldman Sachs would follow that—the downward spiral was arrested when Japan’s Mitsubishi UFJ went through with a promised $9 billion investment in Morgan Stanley.

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Although the sub-prime mortgage crisis originated in a small corner of the financial and investment world, the impact was soon felt widely, particularly by the financial institutions that had underestimated the risk in mortgage backed securities and thus invested too heavily in them. As a result of the threat to these essential institutions, the impact metastasized to the stock and bond markets in all countries—and then to economies all around the world—in the form of the Global Financial Crisis. Thus, as I described earlier, money market funds and commercial paper had to be guaranteed by the U.S. government. A number of prominent banks and financial institutions failed or had to be bailed out/rescued/absorbed. No one knew how far the carnage would spread. The equity and debt markets collapsed. Now the generalizing was on the negative side: “the financial system could totally melt down” in a vicious circle without end.

Big Business: A Love Letter to an American Anti-Hero
by Tyler Cowen
Published 8 Apr 2019

American equity markets are considered relatively fair and supportive of liquid trading, more or less on demand, with accurate record keeping. That means an investor can opt for higher-yielding assets without sacrificing much in the way of liquidity, and indeed, helping individuals liquefy their wealth is one of the main functions a financial sector should serve. For instance, cash management accounts and money market funds are easy to obtain and charge relatively low fees. It is also possible to hold stocks and have ready access to those funds. The American system performs well in this regard, as there is a dazzling array of investment products at virtually all levels of risk. Furthermore, Americans can borrow against relatively illiquid forms of wealth, such as homes, cars, and other possessions, with relative ease through a variety of competitive lenders.

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For instance, if you open up a brokerage account, typically you are charged management fees based on how much is in the account, not on your yearly income. As noted at the beginning of this section, finance as a share of measurable wealth has been pretty stable. By measurable wealth, I mean bonds, stocks, money market funds, and other forms of value that can be assigned market prices. It does not include the harder to measure value of human capital or the value of the items sitting around your house. Keep in mind that ratios of national wealth to national income vary over the course of history, and thus the size of the financial sector relative to income will vary too.

A Hacker's Mind: How the Powerful Bend Society's Rules, and How to Bend Them Back
by Bruce Schneier
Published 7 Feb 2023

Shortly thereafter, First National City Bank reorganized as a holding company in order to avoid bank regulations that would prevent it from issuing CDs at higher rates. Congress fixed the hack by amending the Bank Holding Company Act of 1956, which put the Federal Reserve Board in charge of oversight and regulation of bank holding companies. Other banking hacks of the mid-twentieth century include money market funds and Eurodollar accounts, both designed to circumvent regulatory limits on interest rates offered on more traditional accounts. These hacks all became normalized, either by regulators deciding not to close the loopholes through which they were created or by Congress expressly legalizing them once regulators’ complaints began to pile up.

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Cornman, 113 explainability problem, 212–15, 234 exploits, 21, 22 externalities, 63–64 Facebook, 184, 236, 243 facial recognition, 210, 217 fail-safes, 61, 67 Fairfield, Joshua, 248 fake news, 81 Fate of the Good Soldier Švejk during the World War, The (Hašek), 116 fear, 195–97 Federal Deposit Insurance Corporation (FDIC), 96 Federal Election Campaign Act (1972), 169 federal enclaves, 113–14 Fifteenth Amendment, 161, 164 filibuster, 154–55 financial exchange hacks, 79–82, 83–85 Financial Industry Regulatory Authority, 84 financial system hack normalization as subversive, 90–91 banking, 75, 76–77, 119, 260n financial exchange hacks, 84, 85 index funds, 262n innovation and, 72, 90 wealth/power and, 119 financial system hacks AI and, 241–43, 275n banking, 74–78, 119, 260n financial exchanges, 79–82, 83–85 identifying vulnerabilities and, 77–78 medieval usury, 91 See also financial system hack normalization Fischer, Deb, 190 Fitting, Jim, 1 flags of convenience, 130 foie gras bans, 113–14 foldering, 26 food delivery apps, 99, 124 Ford, Martin, 272n foreknowledge, 54 Fourteenth Amendment, 141 Fourth Amendment, 136 Fox News, 197 frequent-flier hacks, 38–40, 46 Friess, Foster, 169 front running, 80, 82 Fukuyama, Francis, 140 Gaedel, Ed, 41 gambling, 186 gambrel roof, 109 GameStop, 81 Garcia, Ileana, 170 Garland, Merrick, 121 General Motors, 104 genies, 232–33 geographic targeting orders, 87–88 gerrymandering, 165–66 “get out of jail free” card, 260n Getty, Paul, 95 Ghostwriter, 201 gig economy, 99, 100, 101, 116, 123–25, 264n Go, 212, 241 Gödel, Kurt, 25, 27 Goebbels, Joseph, 181 Goldin, Daniel, 115 Goodhart’s law, 115 Google, 185 GPT-3, 220 Great Depression, 74 Great Recession, 96, 173–74 Greensill Capital, 102 Grossman, Nick, 245 Grubhub, 99 Hacker Capture the Flag, 228 hackers competitions for, 228 motivations of, 47 types, 22 hacking as parasitical, 45–47, 84, 173 by the disempowered, 103, 119, 120, 121–22, 141 cheating as practicing for, 2–3 context of, 157–60, 237 defined, 1–2, 9–12, 255n destruction as result of, 172–75 existential risks of, 251–52 hierarchy of, 200–202 innovation and, 139–42, 158–59, 249–50, 252 life cycle of, 21–24 public knowledge of, 23, 256n ubiquity of, 25–28 hacking defenses, 48–52, 53–57 accountability and, 67–68 AI hacking and, 236–39 cognitive hacks and, 53–54, 182, 185, 198–99 detection/recovery, 54–56 economic considerations, 63 governance systems, 245–48 identifying vulnerabilities, 56–57, 77–78, 237–38 legislative process hacks and, 147–49, 151, 154, 156 reducing effectiveness, 53–54, 61 tax hacks and, 15–16 threat modeling, 62–63, 64 See also patching hacking normalization as subversive, 90–91 casino hacks, 35–36, 37 hacking as innovation and, 158–59 “too big to fail” hack, 97–98 wealth/power and, 73, 104, 119, 120, 122 See also financial system hack normalization Hadfield, Gillian, 248 Han, Young, 170 Handy, 124 Harkin, Tom, 146 Harris, Richard, 35 Hašek, Jaroslav, 116 Haselton, Ronald, 75 hedge funds, 82, 275n Herd, Pamela, 132 HFT (high-frequency trading), 83–85 hierarchy of hacking, 200–202 high-frequency trading (HFT), 83–85 hijacking, 62 Holmes, Elizabeth, 101 hotfixes, 52 Huntsman, Jon, Sr., 169 illusory truth effect, 189 Independent Payment Advisory Board (IPAB), 153–54 “independent spoiler” hack, 169–70 index funds, 262n indulgences, 71–72, 73, 85, 260n innovation, 101, 139–42, 158–59, 249–50, 252 insider trading, 79–80 intention ATM hacks and, 32 definition of hacking and, 2, 10, 16 definition of system and, 19 Internet, 64–65 See also social media Internet of Things (IoT) devices bugs in, 14 patching for, 23, 49 reducing hack effectiveness in, 54 Intuit, 190 Investment Company Act (1940), 82 Jack, Barnaby, 34 jackpotting, 33–34 Jaques, Abby Everett, 233 Joseph Weizenbaum, 217 jurisdictional rules, 112–13, 128–31 Kemp, Brian, 167 Keynes, John Maynard, 95 Khashoggi, Jamal, 220 King Midas, 232 labor organizing, 115–16, 121–22 Law, John, 174 laws accountability and, 68 definition of hacking and, 12 market and, 93 rules and, 18, 19 threat model shifts and, 65 See also legal hacks; tax code legal hacks, 109–11 bureaucracy and, 115–18 common law as, 135–38 Covid-19 payroll loans and, 110–11 loopholes and, 112–14 tax code and, 109–10 legislative process hacks, 145–49 defenses against, 147–49, 151, 154, 156 delay and delegation, 153–56 lobbying and, 146–47 must-pass bills, 150–52 vulnerabilities and, 147–48, 267n Lessig, Lawrence, 169 Levitt, Arthur, 80 literacy tests, 162 lobbying, 77, 78, 146–47, 158 lock-in, 94 loopholes deliberate, 146 legal hacks and, 112–14 systems and, 18 tax code and, 15, 16, 120 See also regulation avoidance loot boxes, 186 Luther, Martin, 72 luxury real estate hacks, 86–88 Lyft, 101, 123, 125 machine learning (ML) systems, 209 Malaysian sharecropping hacks, 116 Manafort, Paul, 26 Mandatory Worldwide Combined Reporting (MWCR), 129 mansard roof, 109 market hacks capitalism and, 92–93 market elements and, 93–94 private equity, 101–2 “too big to fail,” 95–98 venture capital as, 99–101 Mayhem, 228–29 McSorley, Marty, 44 medical diagnosis, 213 medieval usury hacks, 91 Meltdown, 48 MercExchange, 137 microtargeting, 184, 185, 216 Mihon, Jude (St. Jude), 255n mileage runs, 38–39 military enlistment, 188 Minsky, Hyman, 260n Minsky, Marvin, 206 ML (machine learning) systems, 209–10 money laundering, 86–87 money market funds, 75 monopolies, 93–94 Monopoly, 260n Moynihan, Donald, 132 multifactor authentication, 59–60 Musk, Elon, 81 must-pass bills, 150–52 Nader, Ralph, 170 National Hockey League, 158 Native lands, 113 9/11 terrorist attacks, 10–11, 26 normalization. See hacking normalization norms, 19, 66 NOW accounts, 74–75 One Subject at a Time Act, 151 online games, 186 Organization for Economic Co-operation and Development (OECD), 129–30 Ornstein, Norm, 156 outrage, 184 “ox walking,” 156 Pacific Investment Management Company, 111–12 Palin, Sarah, 154 paper money, 174 patching, 49–52 AI hacking and, 238–39, 240 automatic, 50 cognitive hacks and, 182 for ATM hacks, 32, 33 financial exchange hacks and, 80, 85 hacking hierarchy and, 201 hacking life cycle and, 23–24 hacking normalization and, 77 hotfixes, 52 impossibility of, 53–54 regulation avoidance and, 125 tax hacks and, 15–16, 51 technology and, 50–51 patent law, 137 payday loans, 125–26 persona bots, 221–22, 225–26, 274n persuasion, 188–90, 218–19, 220–23 Petraeus, David, 26 Phillips, David, 38, 39–40 phishing, 192, 216 Piketty, Thomas, 250 Pitts, Billy, 267n Podesta, John, 191 point-of-purchase placement, 184 polarization, 185, 196, 197 policy hacks.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

More alarmingly, 7 percent of their money was in company stock—an unnecessary risk since your chances of remaining employed shouldn’t be tied to an investment you hope to live on. Enron employees learned this the hard way. Some 3.3 percent of forty- to forty-nine-year-old Americans’ assets were in money market funds earning zero, and 26 percent of 401(k) participants took loans from their accounts—an awful, wealth-destroying idea except in case of emergency. Many people have substantial savings outside their workplace savings in taxable or other tax-deferred accounts. You can simply stick that money into a target date fund too, of course, but there are some other techniques—possibly requiring some professional help—that are even better at harnessing market risk to your benefit.

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See also alpha (excess return); returns market timing, 3, 30–31, 33, 39, 41–47, 50, 52–56, 58–61, 63, 85, 94, 111, 125 Marketocracy, 225 Markowitz, Harry, 81 Mauboussin, Andrew, 102 Mauboussin, Michael, 99, 101–2, 159–60, 222 McCann, Craig, 202–3 McCrum, Dan, 201–3 McKinsey study, 140 mean variance optimization, 81 media, 152, 186, 199, 229 contrarian articles of, 237–38 and fund managers, 109–10, 116 journalists, 29, 47, 58–60, 99–100, 117–18, 120, 140, 193, 211, 255 and market bloodbaths, 45–47, 60 and market forecasters, 121, 124 report on analysts, 118–20 report on economists, 143–44 scary headlines of, 45–47, 60, 62, 64, 135–36, 232, 234, 237–38, 240, 249 See also specific publications; television shows/stations Meriwether, John, 165, 168–69 Merrill Lynch, 88, 126, 145 Mexico, 86–87 Michaely, Roni, 134–35 Microsoft, 183–84 Miller, Bill, 97–101, 103–5, 109–12, 116, 160, 168, 172 money market funds, 80 Monte Carlo simulation, 77 Morgan Stanley, 131, 181 Morningstar, 78, 105, 150–53, 174–75 mortgage loans, 100–101. See also subprime mortgage loans mutual funds, 32, 69, 102, 112, 137, 149, 221 actively managed, 79, 149–57, 159–60, 174 and “Dogs of the Dow,” 192 and hedge funds, 170, 173–75, 235 and high fees, 149–50, 153, 155–56, 174, 188 high-performing, 111, 151–52, 154 lag the market, 26, 126, 159 losses in, 33, 115, 152 low-cost, 82 origins of, 156–57 passive, 151–53 poor performing, 13, 154–55, 159, 175 ranking of, 150–52 and stock purchases/sales, 60–61, 115–16 successful managers of, 99, 111 See also Vanguard Group MyPlanIQ, 79–80, 83 Nasdaq Composite, 37, 46 National Bureau of Economic Research, 49–50 Ned Davis Research, 89, 226–27 Nenner, Charles, 121–23, 143 Neuberger Berman, 233 Neuberger, Roy, 233 New Century Financial, 198–200 New York Stock Exchange, 182, 233 New York Times, 29, 154 Newsweek, 237 Newton, Isaac, 41 Niederhoffer, Victor, 168–69 Ninja Trading Service, 211 notes, 204–7.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

You’re designed to serve shareholders. You’re talking about cost advantages. Particularly in the bond area, you don’t have to reach for yield to have a competitive yield in the marketplace, because your expense ratios are going to run 12 basis points [or 0.12 percent] compared to 82 for your competitors. Money market funds are even easier. The higher the cost, the lower the return because you can’t do much to increase yield in the money market area. And in the long run, the same thing proves to be true in the stock market, though it isn’t always evident in the short run. So, it’s structure, structure, structure.

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And then, strategy. Focus on the place where cost makes the most obvious difference, and that would be the index fund. Any given index fund is going to be more or less identical to another tracking the same index, so the fund that has the lowest cost will win. The same is true with bond funds, money market funds, or any fund that’s more like a commodity in nature. And so, it’s structure—not quite me, as [Ludwig Mies] van der Rohe, here, I think he said the opposite—but strategy follows structure. That’s the mechanical part. But beyond that, there is the missionary part.”68 According to Bogle, “What’s clear is we’re in the middle of a revolution caused by indexing.

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Instead, they estimated betas for a wide variety of asset classes relative to U.S. equities: bonds, non-U.S. equity in international and emerging markets, nonpublic equity such as venture capital and private equity, commodities, real estate (both private and real estate investment trusts), absolute return (hedge funds), and cash and money market funds. Commodities had a negative beta, which was excellent for diversification purposes: when U.S. equities were going up, commodities tended to go down and vice versa. Not surprisingly, cash had a zero beta. All the other asset classes were treated as having positive betas, ranging from 0.07 for real estate to 0.96 for private equity.

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
by Detlev S. Schlichter
Published 21 Sep 2011

Money Supply without Money Demand That most money today is produced by banks can easily be ascertained by a look at Federal Reserve statistics. The Fed’s money supply measure M2 includes currency in circulation, demand deposits at banks, various time deposits, money market funds, and a few other items. All of these constitute what is used as money in the United States today. Of the 8.8 trillion dollars in M2, about 915 billion are dollar notes and coins and about 700 billion are money market funds (as of December 2010). The rest are demand deposits and various time or saving deposits at banks. In short, about 80 percent of what is money according to Federal Reserve definition is a balance sheet item at a bank.

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope
by John A. Allison
Published 20 Sep 2012

A number of books have been written on this subject, dramatizing the many poor decisions made by bankers in the shadow banking system, but none that I know of seem able (or willing) to pinpoint the real root of the trouble. The shadow banking system mainly consists of nondepository banks and financial firms—like hedge funds, money market funds, investment banks, and insurers—which grew enormously in the past decade and came to play an increasingly important role in lending to businesses, distributing securities, and insuring debts. By 2008, some estimates of the size of this shadow banking system placed it on a par with the more traditional deposit-based banking system.

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These costs have driven commercial banks to focus on areas with higher levels of profits, such as real estate lending, which can also be more risky. Another factor has been the disintermediation of deposits caused by money market mutual funds. These funds often pay higher interest rates on deposits than banks pay. The money market funds also claimed to be as low risk as bank certificates of deposit. Of course, when the financial crisis started, many money funds were under water because in fact they had taken more risk. Unfortunately, the Federal Reserve chose to save the money funds, which created an illusion that they are not risky.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America
by Matt Taibbi
Published 15 Feb 2010

So when Greenspan cut rates for five consecutive years, it caused rates for bank savings, CDs, commercial bonds, and T-bills to drop as well. Now all of a sudden you have a massive number of baby boomers approaching retirement age, and they see that all the billions they have tied up in CDs, money market funds, and other nest-egg investments are losing yields. Meanwhile Wall Street was taking that five consecutive years of easy money and investing it in stocks to lay the foundation for Greenspan’s first bubble, the stock market mania of the nineties. Baby boomers and institutional investors like pension funds and unions were presented with a simple choice: get into the rising yields of the stock market or stick with the declining yields of safer investments and get hammered.

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In testimony before the Senate on May 27, 1994, he said: Lured by consistently high returns in capital markets, people exhibited increasing willingness to take on market risk by extending the maturity of their investments … In 1993 alone, $281 billion moved into [stock and bond mutual funds], representing the lion’s share of net investment in the U.S. bond and stock markets. A significant portion of the investments in longer-term mutual funds undoubtedly was diverted from deposits, money market funds, and other short-term lower-yielding, but less speculative investments. So Greenspan was aware that his policies were luring ordinary people into the riskier investments of the stock market, which by 1994 was already becoming overvalued, exhibiting some characteristics of a bubble. But he was reluctant to slow the bubble by raising rates or increasing margin requirements, because … why?

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

This was achieved via ‘securitising’ the loans – packaging loans of different riskiness together to form mortgage-backed securities attractive to a range of different investors. In 2001, Northern Rock set up ‘Granite’, a securitisation vehicle, to hold and sell these mortgage securities to investors. Unlike deposits, however, this money-market funding was more short-termist and flighty. When the US subprime mortgage crisis struck in 2007, this source of money-market funding suddenly dried up. Banks and other providers of liquidity were suddenly no longer prepared to roll over existing wholesale funding as trust between financial institutions collapsed. Because of its heavy money-market exposure, Northern Rock swiftly ran in to a liquidity crisis.

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio
by Victor A. Canto
Published 2 Jan 2005

In the process, if she convinces the committee of the outlying forecast’s likelihood, the probabilities are revised accordingly. 146 UNDERSTANDING ASSET ALLOCATION Style Size Value Large 50% 70% Growth Chapter 8 The Cyclical Asset Allocation Strategy’s Versatility 50% Asset Type Benchmark/ETFs S&P BARRA Value S&P BARRA Growth Value Domestic Equities Mid 50% 50% 20% Growth 50% S&P 400 Value S&P 400 Growth Value World Small 50% 10% Growth 50% 100% S&P 600 Value S&P 600 Growth Cash Equivalent 25% Money Market Fund Short Term Fixed Income 25% 50% Intermediate Term 25% Lehman 1–3-Year Treasury Bond Lehman 7–10-Year Treasury Bond Long Term 25% Figure 8.1 Lehman 20+-Year Treasury Bond Strategic asset allocation for a manager of high-net-worth individuals. 147 Table 8.1 Investment advisory committee quarterly questionnaire.

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Figure 8.2 shows a graphical representation of the lifecycle allocation. 152 UNDERSTANDING ASSET ALLOCATION Chapter 8 The Cyclical Asset Allocation Strategy’s Versatility International 2040 2030 2020 2010 Capital Preservation International 20% 17% 14% 10% 8% 6% 20% 20.4% 13.6% 16.8% 14.4% 13.2% 9.6% 13.6% 7.2% 14.4% Value Value Equities Large 85% 60% 50% Growth Growth 50% 20.4% 9.4% 16.8% 1.6% 13.2% 9.4% 9.6% 1.6% 7.2% Mid 20% 50% 6.8% 5.6% 3.6% 0.0% 4.4% 3.6% 3.2% 0.0% 2.4% 6.8% 5.6% 8.4% 4.4% 0.0% 8.4% 3.2% 0.0% 2.4% Value Small World 100% 20% 50% Fixed Income 15% 6.8% 5.6% 3.6% 0.0% 4.4% 3.6% 3.2% 2.4% 0.0% 6.8% 8.4% 5.6% 0.0% 4.4% 8.4% 3.2% 0.0% 2.4% 5% 5% 5% 5% 7% 0.0% U.S. 80% 10% 25% 40% 55% 63% 10% T-Bonds Figure 8.2 Small World 0.0% 100% 0.0% T-Bills T-Bonds 67% Mid 0.0% 0.0% Growth T-Bills 33% 0.0% Value Growth 50% 20% 100% 10% Growth Growth 50% Equities Large Value Value U.S. 80% 90% 90% Strategic allocation—lifecycle rebalancing. Fixed Income 80% 153 One lifecycle-fund family based in the Midwest invested its portfolios in unaffiliated mutual fund shares (including index funds, money-market funds, and ETFs) representing broad classes of assets (namely stocks, T-bonds, and money-market instruments). Early on, this fund family hired a consultant to provide it with an asset-allocation strategy. The consultant used a traditional quantitative approach to asset allocation, and the outcome produced was not altogether a happy one.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
by George A. Akerlof and Robert J. Shiller
Published 1 Jan 2009

It turns out that once the mortgages were put into packages, a financial miracle occurred. They were taken to rating agencies, who often put their stamp of approval on them. The subprime packages were in fact rated very highly—80% AAA and 95% A or higher. These ratings were in fact so high that they would be bought into by bank holding companies, money market funds, insurance companies, and sometimes even depository banks themselves that would never have touched any of these mortgages individually. According to Charles Calomiris, two bits of magic enabled the rating agencies to accomplish this hat trick. They attached to the securities a very low expected loss rate due to default, about 6%.

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As the pundits and the politicians—and also the economists—have adopted an increasingly uncritical view of capitalism, a whole industry has arisen to produce and sell questionable financial products. For the most part, Josepha herself has not bought these. Instead she has empowered those who control her pension funds, her 401(k) account, her money market fund, or, if she is very rich, her hedge fund managers to buy these products. There has been financial gain for those who trade on behalf of these funds—often very significant gain. But poor Josepha has been left holding the bag. Our worry, however, is not just for Josepha. This is a book about macroeconomics.

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World
by Sandra Navidi
Published 24 Jan 2017

This intermediation has created access to capital and opportunities for millions of people, especially those from lower- and middle-class income backgrounds. Moreover, these institutions provide payment systems, without which our highly interconnected world would likely come to a grinding halt. The shadow banking system—financial intermediaries that do not have a banking license, such as investment banks, hedge funds, and money market funds—provides a variety of financial services. Financial regulators safeguard the system. Central banks are in charge of monetary policies. Think tanks develop new perspectives, offer expert advice, and advocate special interests. Academics and thought leaders provide innovative views and substantiate or invalidate practices in the financial system.

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Rather, they invest on their clients’ behalf, render investment advice, and engage in corporate transactions such as mergers, acquisitions, and initial public offerings. Their deals are usually a bit riskier because they deal with sophisticated clients. Shadow banks is a catchall term for all financial service providers that lack a banking license, such as investment banks, broker dealers, investment funds, and money market funds. Shadow banks have recently come into focus as much business has fled from heavily regulated banks to the lightly regulated and nimbler shadow banks. In fact, they have received such large capital inflows that they are now considered a potential risk for financial stability. Bank CEOs are amongst the most powerful individuals in the financial system due to the indispensability and pervasive power of their institutions.

The End of Growth: Adapting to Our New Economic Reality
by Richard Heinberg
Published 1 Jun 2011

The indirect consequences were that US households were in effect using funds borrowed from foreigners to finance consumption or to bid up house prices, while sales of mortgage-backed securities also amounted to sales of accumulated wealth to foreign investors. Shadow Banks and the Housing Bubble By this time a largely unregulated “shadow banking system,” made up of hedge funds, money market funds, investment banks, pension funds, and other lightly-regulated entities, had become critical to the credit markets and was underpinning the financial system as a whole. But the shadow “banks” tended to borrow short-term in liquid markets to purchase long-term, illiquid, and risky assets, profiting on the difference between lower short-term rates and higher long-term rates.

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Actual expenditures included $29 billion for the Bear Stearns bailout; $149.7 billion to buy debt from Fannie Mae and Freddie Mac; $775.6 billion to buy mortgage-backed securities, also from Fannie and Freddie; and $109.5 billion to buy hard-to-sell assets (including MBSs) from banks. However, the Fed committed itself to trillions more in insuring banks against losses, loaning to money market funds, and loaning to banks to purchase commercial paper. Altogether, these outlays and commitments totaled a minimum of $6.4 trillion. Documents released by the Fed on December 1, 2010 showed that more than $9 trillion in total had been supplied to Wall Street firms, commercial banks, foreign banks, and corporations, with Citigroup, Morgan Stanley, and Merrill Lynch borrowing sums that cumulatively totaled over $6 trillion.

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
by Helaine Olen
Published 27 Dec 2012

Over the years Quinn made numerous enemies, ranging from brokers to heads of mutual fund companies, for relentlessly putting the financial interests of the consumer ahead of the financial interests of the financial services industry. Quinn sees herself as both a part of the consumer movement and the personal finance and investment communities. She names as her contemporaries such financial pioneers as Bruce Bent, the creator of the now ubiquitous money market fund, and John Bogle, the force behind Vanguard’s low-cost index funds. Yet a look at Quinn’s work demonstrates both the promise and the perils of the financial advice arena. A quick run through the many, many profiles of her penned over the years shows howlers mixed in with the prescient comments, sometimes in the same piece, proving how hard it is to get this forecasting thing right.

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The coalescing of several trends in American life ensured the personal finance industrial complex would keep growing. First, the pace of financial innovation was increasing, and, as a result, our fiscal lives were becoming more complicated. When Quinn joined McGraw Hill in the late 1960s, credit cards had existed for a little more than a decade. There were no adjustable rate mortgages, home equity loans, money market funds, discount brokerages, day traders, IRAs, or other direct contribution retirement accounts like the 401(k). As these innovations debuted in the marketplace over the course of the 1970s and 1980s, the need for financial information grew exponentially. Second was the great bull market of the twentieth century, which began just as Americans were beginning to grapple with self-funded retirement mechanisms like the IRA and 401(k).

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

Raising deposits, especially in an economy in which savings rates are falling, also has limits. Debt has no such limit. So where could European banks find huge amounts of cheap debt to fund themselves? The repo markets we encountered in chapter 2 were one place, but this time they were located in London rather than New York.60 US money-market funds that were looking for positive returns in a low-interest-rate world after 2008 was the other. After all, those conservative European banks were nowhere near as risky as those US banks, so why not buy lots of their short-term debt? The ECB will never let them fail, right? As the 2000s progressed, those supposedly conservative European banks increasingly switched out of safe, local, deposit funding and loaded up on as much short-term internationally sourced debt as they could find.

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So much so that according to one study, by “September 2009, the United States hosted the branches of 161 foreign banks who collectively raised over $1 trillion dollars’ worth of wholesale bank funding, of which $645 billion was channeled for use by their headquarters.”61 US banks at this time sourced about 50 percent of their funding from deposits, whereas for French and British banks the comparable figure was less than 25 percent.62 By June 2011, $755 billion of the $1.66 trillion dollars in US money-market funds was held in the form of short-term European bank debt, with over $200 billion issued by French banks alone.63 Just as in 2008, these banks were borrowing overnight to fund loans over much longer periods. Besides being funded via short-term borrowing on US markets, it turned out that those conservative, risk-averse European banks hadn’t missed the US mortgage crisis after all.

The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals
by Daniel R. Solin
Published 7 Nov 2006

Once you have finished all of the questions, you will add up these numbers. All of these numbers added together will give you your Risk Assessment Score (RAS). Enter this score on page 178. 1. In addition to your long-term investments, approximately how many months of your current expenses do you have set aside in cash or money market funds for unexpected needs? A. 6 months .... . .... ... ... .. ....................... 3 B. 4 months. . . . . . . . . . . . • . . . . • . . . . • . . . . • . . . . . .. 2 C. 2 months ......• . • • . • ••..••. • .• •. ...• . •..• . ...... 1 D. None ........................................... 0 2.

Beyond Outrage: Expanded Edition: What Has Gone Wrong With Our Economy and Our Democracy, and How to Fix It
by Robert B. Reich
Published 3 Sep 2012

It would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets). Dimon argued the financial system could be trusted, that the near meltdown of 2008 was a perfect storm that would never happen again. “Most of the bad actors are gone,” he said. “Off-balance-sheet businesses are virtually obliterated,” “money market funds are far more transparent,” and “most very exotic derivatives are gone.” JPMorgan’s lobbyists and lawyers then did everything in their power to eviscerate the Volcker Rule—creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near meltdown.

What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale
Published 23 May 2011

Numerous experiments are currently under way, including bilateral swaps between the Chinese central bank and foreign central banks (one side of which is RMB), and reciprocal invoicing of trade transactions between a number of partner economies and the People’s Republic of China (again involving RMB). But the main test-bed for gradual liberalization of the RMB is Hong Kong. For several years Hong Kong residents have been able to accumulate RMB deposits (at a limited rate), and since July 2010 several RMB investment products such as RMB-denominated bonds or money market funds have become available in the territory. Also since July 2010 Hong Kong banks have been allowed to offer settlement facilities for trade transactions (but not capital transactions) denominated in RMB, together with limited deposit and lending facilities. For example, loans to companies–whether resident in Hong Kong or not–are permitted if related to trade transactions, but not loans to individuals.

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NEUROPLASTICITY: The brain’s ability to reorganize itself through the formation of new neural connections in response to new situations and environmental changes throughout life. OUTPUT GAP: The difference between actual and potential output as a percent of GDP. OVERNIGHT RATE: The interest rate on money market funds that are lent and borrowed overnight. PALACE COUP: An overthrow of or challenge to a sovereign or other leader by members of the ruling family or group. PATRONAGE SYSTEM: The postelection practice in which loyal supporters of a winning candidate and/or party are rewarded with appointive public offices.

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

Most stock markets now have a specific market segment for the listing of trackers. Over 6200 trackers are listed for a total amount of over $2900bn ($485bn for 2200 funds in Europe). In terms of portfolio management, we shall consider the difference between a top-down and a bottom-up approach. In a top-down approach, investors focus on the asset class (shares, bonds, money-market funds) and the international markets in which they wish to invest (i.e. the individual securities chosen are of little importance). In a bottom-up approach (commonly known as stock-picking), investors choose stocks on the basis of their specific characteristics, not the sector in which they belong.

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This assumption does not fit with the efficient market theory, not only because the statistical rule for modelling prices is different, but more importantly because Mandelbrot’s assumptions imply that prices have memory, i.e. that they are not independent from past prices. Section 19.6 Term structure of interest rates Because it is a single-period model, the CAPM draws no distinction between short-term and long-term interest rates. As has been discussed, a money-market fund does not offer the same annual rate of return as a 10-year bond. An entire body of financial research is devoted to understanding movements in interest rates and, in particular, how different maturities are linked. This is the study of how the yield curve, which at a point in time relates the yield to maturity to the maturity (or duration) of bonds, is formed. 1.

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In order to meet its objectives, each cash mutual fund invests in a selection of Treasury bills, certificates of deposit, commercial paper, repos and variable or fixed-rate bonds with a short residual maturity. Its investment policy is backed by quite sophisticated interest-rate risk management. The subprime crisis was a healthy (but costly!) reminder for some treasurers that an increase in return cannot be obtained without an increase in risk. Some money-market funds, nicknamed “turbo” or “dynamic”, had invested part of their portfolio in subprime securities to boost their returns. During the summer of 2007 and thereafter, their performances suffered severely and the majority of them lost most of their customers. Securitisation vehicles are special-purpose vehicles created to take over the claims sold by a credit institution or company engaging in a securitisation transaction (see Chapter 21).

The Ascent of Money: A Financial History of the World
by Niall Ferguson
Published 13 Nov 2007

The performance of the American stock market is perhaps best measured by comparing the total returns on stocks, assuming the reinvestment of all dividends, with the total returns on other financial assets such as government bonds and commercial or Treasury bills, the last of which can be taken as a proxy for any short-term instrument like a money market fund or a demand deposit at a bank. The start date, 1964, is the year of the author’s birth. It will immediately be apparent that if my parents had been able to invest even a modest sum in the US stock market at that date, and to continue reinvesting the dividends they earned each year, they would have been able to increase their initial investment by a factor of nearly seventy by 2007.

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In the late 1970s, this sleepy sector was hit first by double-digit inflation - which reached 13.3 per cent in 1979 - and then by sharply rising interest rates as the newly appointed Federal Reserve Chairman Paul Volcker sought to break the wage-price spiral by slowing monetary growth. This double punch was lethal. The S&Ls were simultaneously losing money on long-term fixed-rate mortgages, because of inflation, and haemorrhaging deposits to higher-interest money market funds. The response in Washington from both the Carter and Reagan administrations was to try to salvage the entire sector with tax breaks and deregulation,ap in the belief that market forces could solve the problem.37 When the new legislation was passed, President Reagan declared: ‘All in all, I think we hit the jackpot.’38 Some people certainly did.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)
by Charles Wheelan
Published 18 Apr 2010

(Earlier in the year they had saved Bear Stearns, another troubled investment bank, by arranging a takeover by JPMorgan Chase.) When Lehman declared bankruptcy, leaving all of its creditors high and dry, the global financial system essentially seized up. A Treasury official described the cascade of panic to The New Yorker: “Lehman Brothers begat the Reserve collapse [a money-market fund], which begat the money-market run, so the money-market funds wouldn’t buy commercial paper [short-term loans to corporations like GE]. The commercial-paper market was on the brink of destruction. At this point, the banking system stops functioning.”12 Sensible people started talking about surviving by raising goats in the backyard.

Samuelson Friedman: The Battle Over the Free Market
by Nicholas Wapshott
Published 2 Aug 2021

The university declined the offer. 18.The shorthand term M1 is made up of all cash in circulation, plus money equivalents like traveler’s checks, as well as demand and checkable deposits held by the public in banks. M2 includes M1 plus short-term time bank deposits, small savings deposits, and retail money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than twenty-four-hour maturity. M4 includes M3 plus other deposits. 19.Letter from Samuelson to Friedman, December 8, 1964. Duke Samuelson archive. 20.Letter from Friedman to Samuelson, January 13, 1965. Duke Samuelson archive. 21.Piero Sraffa (August 5, 1898–September 3, 1983), Italian economist saved from Mussolini’s fascism by Keynes appointing him the Marshall librarian at Cambridge.

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

You didn’t offer to buy a large block of a company’s shares, you ran a corporate “raid,” “hostile” if possible. George Soros did not try to explain that his selling of the British pound improved economic allocation for everyone; he gloried in the charge that he had attacked Britain and won. The 1970s saw major innovations of great importance to investors. Money market funds, for example, got around the long-standing rules that limited interest rates investors could earn. No-load, low-fee index mutual funds offered tremendous value compared to alternatives for most investors. The fixed commissions that had been the entire reason Wall Street was created in the 1792 Buttonwood Agreement, disappeared in 1975, paving the way for the discount brokerage firms that would dominate the market and changing the way Wall Street did research.

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Let’s answer that question by asking another one. Who paid for all this growth? Did people suddenly start saving more, or taking money that had been other places and giving it to Wall Street? No and no. Global savings rates declined. People changed the types of financial institutions that held their money, such as from bank accounts to money market funds, or using mutual funds instead of whole life insurance for retirement planning, but they didn’t contribute significantly more money in total. The reason it seemed that more money came to Wall Street is that most private retirement plans changed from defined-benefit plans where the employer manages the retirement account to defined-contribution plans where the employee does.

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
by Lawrence G. Mcdonald and Patrick Robinson
Published 21 Jul 2009

Would I get lists of the right kind of people? “Forget that. Get your own lists.” How about a desk in his office, where I could answer the phone and pick up a few leads that way? “Larry, you get a desk and a phone in the bullpen. We’ll teach you the new but noble art of cold-calling clients to sell money market funds, stocks, and bonds. Our analysts put together these financial packages, and you get out there and sell them.” He added that interrupting busy people with a sales pitch was no walk in the park. In fact, he suggested that if I was any good, I had a fighting chance of becoming, in a very short time, the least popular person in Pennsylvania.

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Maybe it was the Bear Stearns hedge funds, maybe the rumors about Merrill’s unsold CDOs, maybe the avalanche of investors piling into Jeremiah’s short index trades. But whatever it was, the commercial paper market, the lifeblood of us all, was suddenly contracting. There was a clear and definite reluctance on the part of banks and money market funds to lend to us speculators. Both Mike and Larry would have chuckled sarcastically, No! How could anything like that possibly have happened? The signs were barely discernible, but on June 30 there was another minor hand grenade landing on the floor. Someone found out almost one in four of all Countrywide’s subprime loans were delinquent—25 percent, up from 15 percent against the same period last year.

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry
by William K. Black
Published 31 Mar 2005

This deregulation was harmful—it was critical to making S&Ls the ideal Ponzi scheme—but it was also essential. Unless the nation was prepared to extend interest rate controls to money market funds (which was impossible politically and would have been very bad economics), S&Ls and banks had to be allowed to pay competitive rates of interest, or else depositors would have removed most of their deposits and transferred them to money market funds that were paying three times the interest rate permitted under Reg Q. The administration, not Pratt, led the charge to repeal Reg Q. Another act that critics often blame incorrectly for the resulting S&L debacle was Congress’s raising the deposit insurance limit from $40,000 to $100,000.

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World
by Don Tapscott and Alex Tapscott
Published 9 May 2016

Storing Value: Financial institutions are the repositories of value for people, institutions, and governments. For the average Joe, a bank stores value in a safety deposit box, a savings account, or a checking account. For large institutions that want ready liquidity with the guarantee of a small return on their cash equivalents, so-called risk-free investments such as money market funds or Treasury bills will do the trick. Individuals need not rely on banks as the primary stores of value or as providers of savings and checking accounts, and institutions will have a more efficient mechanism to buy and hold risk-free financial assets. 4. Lending Value: From household mortgages to T-bills, financial institutions facilitate the issuance of credit such as credit card debt, mortgages, corporate bonds, municipal bonds, government bonds, and asset-backed securities.

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Moving Value—make a payment, transfer money, and purchase goods and services Transfer of value in very large and very small increments without intermediary will dramatically reduce cost and speed of payments Retail banking, wholesale banking, payment card networks, money transfer services, telecommunications, regulators 3. Storing Value—currencies, commodities, and financial assets are stores of value. Safety deposit box, a savings account, or a checking account. Money market funds or Treasury bills Payment mechanism combined with a reliable and safe store of value reduces need for typical financial services; bank savings and checking accounts will become obsolete Retail banking, brokerages, investment banking, asset management, telecommunications, regulators 4.

Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler
Published 10 May 2015

Madrian and Shea aptly called the resulting paper “The Power of Suggestion,” and their analyses reveal that the power of default options can have a downside. Any company that adopts automatic enrollment has to choose a default saving rate and a default investment portfolio. Their company had adopted a 3% saving rate as the default, and the money went into a money market fund, an option with little risk but also a very low rate of return, meaning that savings would be slow to accumulate. The government influenced both of these choices. The company had no choice about the selection of the money market account as the default investment because, at that time, it was the only option approved for such use by the U.S.

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Both of these default choices—the money market investment option and the 3% saving rate—were not intended by the employer to be either suggestions or advice. Instead, these options were picked to minimize the chance that the company would be sued. But employees seemed to treat the default options as suggestions. Most ended up saving 3% and investing in a money market fund. By comparing the choices of people who joined before automatic enrollment with those who came after, Madrian and Shea were able to show that some employees would have selected a higher saving rate if left to their own devices. In particular, many employees had heretofore picked a 6% savings rate—the rate at which the employer stopped matching contributions.

Seven Crashes: The Economic Crises That Shaped Globalization
by Harold James
Published 15 Jan 2023

The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”9 Globalization could give greater access to unsophisticated money. The key linkage was the purchase of U.S. securities by European banks, which in turn financed themselves on the U.S. money market, in large part through the deposits in money market funds made by American retail customers.10 What eventually gave was the structure of credit in the United States. The crisis that shook the world in 2007–2008 unambiguously had its roots in the overblown financial system. At the time, it appeared as a collective nervous breakdown that originated in a collapse of property prices (see Figure 6.1).

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As part of his campaign to transform China, he started cultivating a domestic audience—an action in image-building that brought him into conflict with the authorities. He was also offering apparently better conditions: Yu’e Bao, an investment product that Ma launched in 2013, gave higher returns than the state-owned banks, and by 2018 it had become the world’s largest money market fund, with $244 billion in assets.75 Ma criticized the Chinese government, and in particular its regulators: “One of the reasons why Alibaba grew so fast [was] because the government didn’t realise it. . . . When they start[ed] to realise it, we became very slow.” It seemed like a confession that a big private-sector player could not be too innovative, as that would involve a challenge to the state and its capacity.

The Little Book of Hedge Funds
by Anthony Scaramucci
Published 30 Apr 2012

Emerging from the Ashes The hedge fund failures referenced previously were nothing compared with the financial crisis that the world experienced (and is arguably still experiencing) from 2007 to 2009. Although all investment vehicles have been vilified by the press, investment banks, housing lenders, money market funds, and insurers experienced the largest losses. In 2007, hedge funds ended the year up 10 percent. By the end of the debacle of 2008, they were down 21 percent while the S&P 500 Index was down almost twice as much to 37 percent (see Table 2.1). Table 2.1 Comparable Performance: HFRI Fund of Funds vs.

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer
by Dean Baker
Published 15 Jul 2006

They recognized the high administrative costs associated with the existing system of defined contribution pensions in the United States, as well as the costs of privatized Social Security systems in other countries. In order to reduce the costs of a privatized system, they proposed having a single centralized system which would pool workers’ savings from all over the country. Their proposal called for having a limited number of investments options (e.g. a stock index fund, a bond index fund, a money market fund, and possibly one or two other options) and limited opportunities to switch between funds. According to the Bush commission’s estimates, the administrative costs of this bare-bones system would be approximately 5 percent of the money paid into the system. While this is still very expensive compared to the 0.5 percent in administrative fees charged by Social Security, it is far less than the 15-20 percent in fees charged by financial firms for operating private sector defined contribution pensions in the United States, or that financial firms charge to operate privatized Social Security accounts in other countries.

Cryptoeconomics: Fundamental Principles of Bitcoin
by Eric Voskuil , James Chiang and Amir Taaki
Published 28 Feb 2020

This is not a consequence of banking but of state intervention in banking. To the extent the presumption is attributed to free banking [532] , the theory is invalid. All classes of business are subject to failure, and in doing so free banking eliminates this misperception. The distinction between a money market fund [533] (MMF) and a money market account [534] (MMA) is informative. Both are intended to maintain a one-to-one equivalence with money, yet both are discounted against money due to settlement [535] and risk costs (e.g. some people accept only money, rejecting the higher costs of credit card [536] and cheque [537] transactions).

An Empire of Wealth: Rise of American Economy Power 1607-2000
by John Steele Gordon
Published 12 Oct 2009

But as the booming 1950s and early 1960s gave way to the gathering inflation of the late 1960s and 1970s, the business model of the S&Ls began to fall apart. Unregulated interest rates soared while the regulated banking rates stayed the same. Wall Street brokerage houses and mutual funds began offering money market funds that paid a far higher rate of interest than savings accounts. People increasingly withdrew money from savings banks and savings and loan associations and moved it to the new money market funds, a movement referred to by the sonorous economic term “disintermediation.” Commercial banks, most of whose deposit base was in noninterest-bearing checking accounts, could cope. The other banks could not.

Wealth and Poverty: A New Edition for the Twenty-First Century
by George Gilder
Published 30 Apr 1981

Labor gets pensions and fringes, medical plans and stock plans, and executives get perks and awards for statesmanship rather than denunciations for excess profits. Somewhat lower in prestige but still above ground is the balmy culture of tax shelters and avoidance devices and the sudden mushrooming of money market funds, which waste much of our most valuable financial talent in a superfluous intermediation of money. The canny legions of lawyers, accountants, and other financial finaglers are of considerable value to their clients, but in this field they contribute little to the long-run growth of the economy.

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Mauss, Marcel McCarthy, Cormac McClelland, David McGovern, George McGraw Hill McKinney, Stuart McKinley, Vern McTigue, Maurice Mead, Margaret means tests media medicaid medical science medicare melting pot men, group leadership aptitude of provider, role of mercantilism meritocracy Merrill, Charles Merrill Lynch Mexico Miami (Florida) Michigan microbiology microcomputers microeconomics microprocessors Microsoft Midas middle-class values Midland, Archer Daniels Milken, Michael Mill, John Stuart millionaires Minard, Lawrence Minarek, Joseph minimum wage minority workers Mises, Ludwig von Mississippi MIT monetarism money, social pressures of supply of taboo money illusion Money (John Kenneth Galbraith) money market funds monopolies monopoly capitalism Moore, Gordon Moore, Stephen The Moral Basis of a Backward Society (Edward Banfield) moral hazards definition of of liberalism More Equality (Herbert J. Cans) Morgenthaler, David T. Mormons Moynihan, Daniel Patrick Moynihan Report multinational corporations multiple regression analysis Mumi Murray, Charles Myrdal, Gunnar Myrvold, Nathan myth of immobility N Nader, Ralph Napoleon Nathan, Richard National Bureau of Economic Research National Center for Productivity National Enterprise Board National health insurance Nationalized industries National Laboratories National Mortgage Association National Organization for Women National plans National Semiconductor Corporation National Venture Capital Association NBC negative income tax Neighborhood Youth Corps neoconservatives neo-Malthusians Netanyahu, Benzion Netflix Newark (New Jersey) New Deal New Hampshire The New Industrial State (John Kenneth Galbraith) New Republic, the Newsweek New York City New York Post New York State New York Times New Zealand Niebuhr, Reinhold Nisbet, Robert Nixon, Richard No Country for Old Men nonprofit concerns northeast North Sea oil Norton, Eleanor Holmes Noyce, Robert O Obama, Barack Occupational Safety and Health Administration (OSHA) OECD.

Model Thinker: What You Need to Know to Make Data Work for You
by Scott E. Page
Published 27 Nov 2018

Deposit insurance guarantees the depositors’ money held in banks. People also keep money in the stock market and in money market funds. Each type of investment is a stock. Once we start drawing the arrows—the flows between the boxes—the policy’s flaw becomes evident. The direct effect of the deposit insurance increases the safety of banks, making banks more attractive (arrow #1 in figure 18.6). It also makes the other types of investments less attractive. Imagine yourself as investor with money in both banks and money markets during a turbulent time. Your bank deposits are now insured. Your money market funds are not. The prudent action would be to increase bank deposits (arrow #2) and withdraw from money markets (arrow #3).

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era
by Gary Gerstle
Published 14 Oct 2022

These commercial banks, moreover, were allowed to invest only 10 percent of their reserves in private securities. They were permitted to trade in government securities, which were deemed to be safe instruments, backed by federal government guarantees. Interest on checking accounts was non-existent, and interest on savings accounts was low. Money market funds did not exist. Glass-Steagall along with other regulatory legislation in the 1930s restored confidence in the US banking sector and put it on a much more stable footing. These laws structured the New Deal order’s financial regime through the entirety of that order’s existence. During this era, banks took a back seat to the corporate giants of manufacturing—General Motors, Ford, US Steel, Standard Oil of Ohio (and later Exxon), DuPont, Boeing, and Lockheed-Martin—in driving the economy.

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On Tuesday, September 16, 2008, the Fed, at the instruction of Ben Bernanke, Greenspan’s replacement as Fed chair, rushed in with an $85 billion rescue package similar in size to what it had offered Bear Stearns in March.68 This dramatic intervention settled markets momentarily, but both Bernanke and Paulson, as well as their close collaborator, Timothy Geithner, head of the New York branch of the Federal Reserve, knew that more had to be done. Money market funds—a system used globally by millions of consumers as savings accounts and by businesses to park temporarily hundreds of billions in cash—were edging toward default. If they went bust, liquidity would dry up. Like engines operating without oil, the world’s financial institutions would then seize up and grind to a halt.

Market Wizards: Interviews With Top Traders
by Jack D. Schwager
Published 7 Feb 2012

If you were counseling the average investor, what would you tell him? Don’t do anything until you know what you are doing. If you make 50 percent two years in a row and then lose 50 percent in the third year, you would actually be worse off than if you just put your money in a money market fund. Wait for something to come along that you know is right. Then take your profit, put it back in the money market fund, and just wait again. You will come out way ahead of everybody else. Are you ever wrong on a major position play? That is, are one of your almost sure shots ever wrong, or are they so well selected that they just invariably go? I don’t want to make it sound like I don’t know how to lose money—because I know how to lose money better than most people—but there has not been a major mistake in a long time.

Capitalism 3.0: A Guide to Reclaiming the Commons
by Peter Barnes
Published 29 Sep 2006

The more relevant reason is our own blindness: the only economic matter we notice is the kind that glistens with dollar signs. We ignore common wealth because it lacks price tags and property rights. I first began to appreciate common wealth when Working Assets launched its socially screened money market fund. My job was to write advertisements that spurred people to send us large sums of money. Our promise was that we’d make this money grow, without investing in really bad companies, and send it back—including the growth, but minus our management fee—any time the investor requested. It struck me as quite remarkable that people who didn’t know us from a hole in the wall would send us substantial portions of their savings.

Willful: How We Choose What We Do
by Richard Robb
Published 12 Nov 2019

I pretend that work is a pain, but I’d be lost without it. I procrastinate because boring tasks become more exciting when I’m up against a deadline. I’m careful to buy milk at the store where it’s twenty cents cheaper, yet for eighteen years I have left my Columbia University retirement account in a low-yielding money market fund and missed out on a booming stock market—despite the fact that I teach economics. And I’ll occasionally go out of my way to aid a casual acquaintance even when there are far more deserving people I could help. All the while, I think of myself as a rational person. One final confession: I’m not all that embarrassed by any of this because it’s the human condition.

EuroTragedy: A Drama in Nine Acts
by Ashoka Mody
Published 7 May 2018

The money managers lend for short durations and so can refuse to roll over their loans to banks. When financial stress looms, money managers can declare a strike and freeze funding, placing the ability of troubled banks to continue their operations in jeopardy. But with the then-plentiful supply of short-​term money market funds, banks financed activities such as mergers and acquisitions of European corporations. They sought new profit-​making opportunities, including stepped up trading of financial assets and packaging of loans to create new securities.41 “On balance,” the IMF paper ended, “these trends irrational exuberance 165 raise serious issues regarding key aspects of financial oversight.”42 Translated from IMF language, the regulators were asleep at the wheel.

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Equity takes the first hit when a bank is in trouble.45 When owners have more skin in the game, the bank has greater ability to repay its depositors and creditors even in adverse conditions; this equity “buffer” makes it less likely that the bank will need official financial assistance if it runs into trouble. European regulators allowed assets of banks to grow much faster than their equity: eurozone banks were becoming more leveraged (figure 4.4). Moreover, banks increased their leverage at the same time as they increased their reliance on “wholesale” money market funds to increase their lending. Thus, 166   e u r o t r a g e d y Rising leverage Asset-to-equity ratio Increased market funding Loan-to-deposit ratio 40 1.5 30 1.25 20 1 10 0.75 0 2003 04 05 06 07 08 0.5 2003 04 Euro-Area Interquartile Range Other European Countries 05 06 07 08 Japan North America Figure 4.4.

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Setting the pace in Ireland was Anglo Irish, a bank that grew as if on steroids. With little shareholder equity that had its own skin in the game, Anglo Irish’s management lent furiously to the Irish property market. Because customer deposits were flowing in too slowly, Anglo relied ever more on short-​term, wholesale, money market funds. This was great business: borrowing short-​term funds at low interest rates and lending to the property sector at premium rates. With Anglo setting the new norms, all banks—​including the two major banks, Allied Irish Bank (AIB) and Bank of Ireland—​felt compelled to join the gold rush.105 The pressure to follow Anglo Irish increased as its growth drew rave reviews from highly regarded international analysts.

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books)
by Stig Brodersen and Preston Pysh
Published 30 Apr 2014

Cash and cash equivalents (1 - Asset Column) This line is sometimes referred to as cash, cash equivalents, and marketable securities. When we think of cash, it includes both any cash kept in a register and cash that is safely stored away in a bank account. Cash equivalents are equal to having cash that is currently in a different form; for example, money market funds, saving deposits and deposit certificates. These can be readily converted into cash and are therefore termed as cash equivalents. Accounts receivables (2 - Asset Column) This line is sometimes called receivables, or net receivables. Most of a business’s sales tend to be carried out on credit as opposed to cash; for example, Coca-Cola could sell soft drinks to Wal-Mart on credit for $1,000.

Think Twice: Harnessing the Power of Counterintuition
by Michael J. Mauboussin
Published 6 Nov 2012

The government’s position was that since the market largely understood Lehman’s poor financial condition, it could absorb the consequences. But the bankruptcy announcement roiled global financial markets because Lehman’s losses were larger than people thought initially, contributing to an increase in global risk aversion. Even parts of the market that were perceived to be safe, like money market funds, received a jolt. For example, the Reserve Primary Fund, one of the oldest and largest money market mutual funds in the United States, announced it had lost money for its fund holders because the Lehman Brothers debt that it held had been wiped out. The announcement shocked investors and undermined confidence in the broader financial system.16 This challenge spills over into other fields as well.

New Market Wizards: Conversations With America's Top Traders
by Jack D. Schwager
Published 28 Jan 1994

He has made only two exceptions since then; both times for close friends. Blake is a mutual fund timer. Generally speaking, mutual fund timers attempt to enhance the yield return on a stock or bond fund by switching into a money market fund whenever conditions are deemed unfavorable. In Blake’s case, he doesn’t merely switch back and forth between a single mutual fund and a money market fund but also makes the additional decision of which sector in a group of sector funds provides the best opportunity on a given day. Blake uses purely technical models to generate signals for the optimum daily investment strategy.

Freedom Without Borders
by Hoyt L. Barber
Published 23 Feb 2012

The client decides the type of investments he or she is interested in, and the insurance investment managers provide their expertise and advice to help maximize those decisions. Thereafter, the portfolio is professionally managed, although you may direct investments, including the purchase shares of stock, bonds, unit trusts, cash deposits, mutual funds, money market funds, and so on. In addition, any investment where value can be established, as can be accomplished in a liquid market (i.e., one where the security or asset can readily be traded on an exchange), can also be incorporated into the portfolio. Other assets can be valued through an appraisal by a reputable, certified appraiser or certified public accountant.

Pity the Billionaire: The Unexpected Resurgence of the American Right
by Thomas Frank
Published 16 Aug 2011

In September, after Lehman Brothers was allowed to fail and financial markets began to panic, the Fed and the Treasury Department began bailing with both hands. They put together an emergency package for AIG, an unregulated hedge fund grafted onto an insurance company; they took over Fannie Mae and Freddie Mac, the mortgage companies; they rode to the rescue of the nation’s money-market funds and organized the distress-takeover of the huge Wachovia bank. And then, having warmed themselves up with these exercises, they went to Congress and asked for that notorious intervention known as the Troubled Asset Relief Program (TARP): $700 billion as a generalized rescue fund for the nation’s banks, to be administered however the former Goldman Sachs chairman, Treasury Secretary Hank Paulson, saw fit.

Electronic and Algorithmic Trading Technology: The Complete Guide
by Kendall Kim
Published 31 May 2007

STN produces three different products: 1. STN Funds Facilitates mutual fund transactions, providing services to employee benefit plans and administrators, asset managers, and bank/trust firms. 2. STN Money Markets Facilitates transactions of short-term investment vehicles such as commercial paper, CDs, time deposits, and money market funds to corporate treasurers, asset managers, and mutual fund companies. 3. STN Securities Facilitates communications between buy-side firms and their brokers and custodians by utilizing open protocols, and supports full life cycle of trades for equities and fixed-income products. STN Securities is the core product for SunGard Financial Network in the algorithmic trading services market.

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else
by Steve Lohr
Published 10 Mar 2015

Andrew Lo of MIT and his two coauthors contend that new streams of financial data—aggregated, properly encrypted, and then analyzed—could give strong clues to hidden risk bombs in the system, like the institutions that touched off the crisis in the fall of 2008, Lehman Brothers and the American International Group. Such data, the authors argue, could “have played a critical role in providing regulators and investors with advance notice of AIG’s unusually concentrated position in credit-default swaps, as well as the exposure of money market funds to Lehman bonds.” This is big data as a financial microscope. The goal is to see the inner workings of markets in illuminating detail to inform understanding and guide action. So Berner is a big-data proponent, but not without qualification. He is skeptical of the uncompromising data-ists who celebrate correlation as plenty good enough without theory, without a model of how the world works.

Hedge Fund Market Wizards
by Jack D. Schwager
Published 24 Apr 2012

It was all public information, but the point is that no one thought it mattered. Even more than three years later, we are sitting here, and you are saying, “Really, money markets broke down in August 2007? Really?” Well, I have to admit, when I think of money markets breaking down in the financial crises, I think of the breaking of the buck by some money market funds in the aftermath of the failure of Lehman Brothers and the subsequent freezing up of the commercial paper market. But these events occurred more than a year later in September 2008. That’s my point. No one seemed to think it was important. The S&P actually went on to make new highs in the next two months.

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So during the next six weeks, we liquidated the entire $9 billion of exposure. The strategy was shut, and the money was sent back to investors. We watched the markets very carefully, and in early 2008, I transferred a vast proportion of the firm’s money into two-year treasury notes. I got rid of all the money market funds. I put all the traders into a wind down of counterparty exposure. We dumped outright exposure to every bank possible and went maximum long fixed income. The systematic trend-following strategy was consistently moving into a similar position. It started reversing from long to short in equities and commodities and going hugely long in fixed income.

I.O.U.: Why Everyone Owes Everyone and No One Can Pay
by John Lanchester
Published 14 Dec 2009

I have used the word “bank” throughout this book to simplify the point, but in reality many modern financial intermediaries—the bodies standing in between the people who want to borrow money and the people who want to lend it—aren’t, strictly speaking, banks at all. There are home loan specialists, credit unions, private equity funds, securitization specialists, money market funds, hedge funds, and insurance companies, all of them differently regulated and not a few of them functioning as separate parts of the same institution. The institutions which make up this world of nonbank banks are sometimes referred to collectively as the “shadow banking system,” and insofar as it has a capital, that capital is the City of London.

Choose Yourself!
by James Altucher
Published 14 Sep 2013

Never invest because of tax reasons: 401(k)s, IRAs, Roth IRAs, 529 Plans, insurance annuities, etc. * * * These are taxes against the middle class where the money goes straight from your employer into the hands of the rich. What Do I Do with My Own Money? I invest myself as I instruct others to. I have as much in cash as possible. None in money market funds. Just cash. I own blue chip stocks that pay dividends for wealth preservation and I invest in some hard-to-value idea companies for wealth creation. I’m also invested in about thirty private companies that I primarily invested in the 2009 crash when valuations were extra low and I was always investing with sophisticated investors smarter than me and was always investing in CEOs that had succeeded before.

Tyler Cowen-Discover Your Inner Economist Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist-Plume (2008)
by Unknown
Published 20 Sep 2008

The trick is to limit the scope of economics in family life without disgracing economic reasoning altogether. Economics has much to offer family life. For instance, if we are thirty-five years old, we probably should put most of our savings into U.S. equities (risky, but the expected return is 7 percent), and not T-bills in a money-market fund (liquid and safe, but the expected return is about 1 percent). The economist should insist. If we are investing $1,000, and our stocks are a bit unlucky and yield only 5 percent, over fifty years the expected difference in returns will amount to about $1,600 versus $11,400, a difference of about eightfold.

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes
by Mark Skousen
Published 22 Dec 2006

Among many choices, including the gold standard, Friedman has favored a "monetary rule" whereby the money supply (usually M2) is increased at a steady rate equal to the long-term growth rate of the economy. One of the problems with Friedman's monetary rule is how to define the money supply. Is it Ml, M2, M3, or what? It is hard to measure in an age of money market funds, short-term CDs, overnight loans, and Eurodollars. Notwithstanding theoretical support for a monetary rule, central bankers have largely focused on "inflation targeting," that is, price stabilization and interest rate manipulation, as a preferable method. The Shadow of Marx and the Creative Destruction of Socialism The Herculean efforts of Milton Friedman, Friedrich Hayek, and other libertarian economists were not the only reason neoclassical economics has made a stupendous comeback.

Investing Demystified: How to Invest Without Speculation and Sleepless Nights
by Lars Kroijer
Published 5 Sep 2013

It is exactly in that circumstance that you want the diversification of investments and assets that the rational portfolio provides. A way to address the potential lack of security of your cash in the bank is to buy securities like AAA/AA government bonds or other investment securities that closely resemble cash (such as money market funds, etc.). Importantly, securities like these still belong to you even in the case of a bank default, and while the process of moving that security to another financial institution could be cumbersome, you are no longer a creditor to a failed bank, which gives you far greater security in a calamity.

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank
by John Tamny
Published 30 Apr 2016

Bartley (legendary editor of the Wall Street Journal’s editorial page) in the 1970s. As Bartley recalled in his wonderful book The Seven Fat Years (1992), Laffer would draw a tiny black box in the corner of a sheet of paper. “This is M-1,” currency and checking deposits. A bigger box was M-2, including savings deposits. Still bigger boxes included money-market funds, then various credit lines. Finally, the whole page was filled with a box called “unutilized trade credit”—that is, whatever you can charge on the credit cards in your pocket. Do you really think, he asked, this little black box controls all of the others. The money supply, he insisted, was “demand determined.”6 Taking this further, Bartley recalled the wisdom of 1999 Nobel Laureate Robert Mundell, who also regularly attended the gatherings with Bartley, Laffer, and other supply-side thinkers.

How to Predict the Unpredictable
by William Poundstone

The PE momentum system would have sold out of stocks almost immediately and bought back in in 2009, experiencing a nice bounceback. The momentum portfolio would have ended up with about £1,960, versus £1,238 for a buy-and-hold FTSE portfolio. Nobody should stake everything on a single nation’s economy. Small investors are advised to build a portfolio of low-cost funds investing in bonds or money market funds, inflation-indexed bonds, European, Asian, and American world stocks, and property. The PE momentum system is to be applied only to that part of your portfolio allocated to a stock fund tracking an index. Some may prefer to apply it only to part of their stock allocation. If you can’t bear the thought of ever being completely out of the market, you might use it for half your allocation, or any fraction you like.

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

FIGURE 4-1 The Wide World of Bonds Sources: Bankrate.com, Bloomberg, Lehman Brothers, Merrill Lynch, Morningstar, www.savingsbonds.gov Notes: (D): purchased directly. (F): purchased through a mutual fund. “Ease of sale before maturity” indicates how readily you can sell at a fair price before maturity date; mutual funds typically offer better ease of sale than individual bonds. Money-market funds are Federally insured up to $100,000 if purchased at an FDIC-member bank, but otherwise carry only an implicit pledge not to lose value. Federal income tax on savings bonds is deferred until redemption or maturity. Municipal bonds are generally exempt from state income tax only in the state where they were issued.

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Mergenthaler Linotype Enterprises, mergers and acquisitions: and aggressive investors; and case histories; and defensive investors; and dividends; and investments vs. speculation; and per-share earnings; and security analysis; serial; stock vs. cash in Merrill Lynch & Co. Micron Technology Microsoft MicroStrategy Miller, Merton Miller, William Minkow, Barry Minnie Pearl’s Chicken System Inc., Mobil Corp. Modigliani, Franco Money Magazine “money managers,” money-market funds “Moneyline” (CNN program) monopolies Montaigne, Michel de Monument Internet Fund Moody’s Investment Service Morey, Matthew Morgan Fun-Shares Morgan Guaranty Bank Morgan Stanley Morgan, J. P. Morningstar: ratings by; website for mortgages Motorola Mr. Market parable Mr. Tax of America Mulford, Charles Munger, Charles municipal bonds; and aggressive investors; and defensive investors; fluctuations in price of; and investment funds Murray, Nick mutual funds: and aggressive investors; as almost perfect; and “buy what you know” picking; characteristics of; closed-end funds vs. open-end; closing of; and convertible issues and warrants; and corporate bonds; decline in funds invested in; and defensive investors; expenses/costs of; “focused” portfolios of; foreign stocks and bonds in; and formula trading; and growth stocks; and inflation; introduction of; for junk bonds; managers of; and market fluctuations; and new offerings; performance of; precious metals; and public attitude about stocks; registration of; as “regulated investment company” (RIC); return on and secondary companies; and security analysis; small-cap; and speculation; and “sure things,”; taxes on; types of.

The Social Life of Money
by Nigel Dodd
Published 14 May 2014

There are five categories in all: M0 and M1 (also called narrow money) include coins and notes in circulation and other money equivalents that can be converted into cash with ease; M2 includes M1 and short-term time deposits (i.e., bank deposits that can only be withdrawn with notice or, if immediately, with a penalty) in banks and 24-hour money market funds; M3 includes M2 plus longer term time deposits and money market funds with more than 24-hour maturity. M4 includes M3 plus other deposits. The exact definitions of the measures depend on local conditions (McLealy et al. 2014: 23). See http://lexicon.ft.com/Term?term=m0,-m1,-m2,-m3,-m4. 46 Source: Chinese Foreign State Administration of Foreign Exchange, see http://www.safe.gov.cn/wps/portal/english/Data/Payments. 47 Source: Bureau of Economic Analysis, see http://www.bea.gov/iTable/index_ita.cfm. 48 Source: Securities Industry and Financial Markets Association, see http://www.sifma.org/research/statistics.aspx. 49 She subsequently criticized Fukuyama’s Trust (Fukuyama 1995) because, even in distinguishing between high-and low-trust societies, he failed to address the problem of trust in the value and stability of money, which, she argued, “causes most conflict at every level of social interaction” (Strange 1998b: 7). 50 Drawee: The person who is requested to pay, e.g., the drawee could be the bank, ordered by one of its depositors, the drawer, to pay a sum of money to a third party.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

And on and on; a cascading waterfall of cash thrown off by debtors each month as they sat down to pay their credit card bills, home mortgages, car loans, and student loans; the cash bucket—minded by investment bankers as trustees—filling up and then spilling into different pools to pay different investors (maybe even some of the same investors who were writing the checks). After all, asset-backed securities were then widely held by mutual funds, money market funds, and pension funds, which in turn were invested in by ordinary savers. The principle of securitization has remained the same since the eighteenth century. If you pool enough risky debt together, and the risk of default is sufficiently uncorrelated, then you can structure part of the resulting cash flow into a safer security.

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See also coinage; paper money; quantity theory of money; time value of money Money and Trade (Law), 353–54, 361 money illusion, Fisher on, 471 money in ancient China, 139, 147–49; coinage of Warring States period, 158–59; cowrie shells as, 138, 143, 146, 147–51, 158, 201; Guanzi on, 157–58, 159, 166; nationalized by First Emperor of Qin, 144, 167, 201 money market funds, 385 money supply: Chinese expansion in Warring States period, 159; fiat money and, 359; Guanzi on, 171; Law’s financial plan and, 353–54, 358, 359; Roman expansion of, 128, 130, 131 Monte Nuovo, 231 Monte Vecchio, 231 Moreno, Alfonso, 77 Morris, Robert, 394, 396–97, 399 mortgage-backed securities, 379, 384, 385–86; commercial, 479; complex contracts for, 4; crisis of 2008 and, 385; skyscraper mortgages and, 477–78 mortgage loan forgiveness, Athenian, 94 mortgages, 2, 4; interest rate calculations for, 244; Roman financial crisis of 33 CE and, 107, 108–9, 110 Murašu family, 65, 67–68 Murphy, Antoin, 349, 351, 353, 358, 359 Muscovy Company, 309–11 mutual funds: with asset-backed securities, 385; Dutch, 382–86, 390; growth of assets held in, 511–12; index funds, 508, 509–11, 514; lack of evidence for active management of, 485, 510; after reforms of 1930s, 501–3; Smith’s pioneering creation of, 473; sovereign wealth funds, 512–14, 515–16.

The Simple Living Guide
by Janet Luhrs
Published 1 Apr 2014

You probably are paying out a lot more in interest than you will earn by saving. Most installment or credit card interest is anywhere from 9 to 18 percent per year. That is what you are paying out. Most bank savings accounts pay, at most, 3 percent interest. Most Certificates of Deposits (CDs) pay about 5 percent, and the average money market fund pays, on average, 4 to 5 percent.1 That is what you receive in. For example, if you have $500 in savings and are earning 3 percent interest in a typical passbook savings account, you will earn $15.21 in interest in the first year (compounded monthly). On the other hand, if you don’t pay off your $500 credit card debt, and you pay 18 percent interest on your credit card, you will pay the bank $97.80 in interest during that same year.

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If gambling on some high-risk stock causes you to be up at night worrying, then the benefits are lost and you are farther away from that simpler, more peaceful life that you are working toward. The following chart explains these various levels of investments. Safety Level Low return Investment Passbook savings Certificates of Deposit (CD) Money market funds U.S. Treasury securities Government savings bonds Whom to consult Bank Bank or broker Broker Broker Bank or broker Moderate Risk Moderate Return High-quality bonds Blue-chip stocks or mutual funds (investing in above) Broker Broker Increasing Risk Low-quality/high-yield bonds Speculative stock or mutual funds (investing in above) Broker Broker Highest Risk Options Commodities Only for the very sophisticated One option is to diversify your investments.

Birth of the Euro
by Otmar Issing
Published 20 Oct 2008

From among the various definitions, the ‘best fit’ method pointed to the money supply M3 defined as follows: Currency in circulation Overnight deposits M1 M1 plus Deposits with an agreed maturity of up to two years Deposits redeemable at notice of up to three months M2 M2 plus Repurchase agreements Money market fund shares/units Debt securities up to two years M3 The reference value, that is the rate of M3 growth consistent with price stability over the medium to long term, was derived from the well-known quantity equation: ⌬M ⫽ ⌬P ⫹ ⌬Y ⫺ ⌬V whereby the change in the money supply (⌬M) corresponds to the change in nominal GDP (⌬Y as real GDP and ⌬P as the change in the price level) less the change in the velocity of money (⌬V).

Automate This: How Algorithms Came to Rule Our World
by Christopher Steiner
Published 29 Aug 2012

There’s too much money to be made by marketing agencies, advertisers, and anybody interested in wooing the most important people in society for this not to happen. We face a future where rigorous and cold calculations such as this will constantly take place at the hands of algorithms. Pecking orders are just the beginning. ALL ROADS . . . If you’re keeping track, algorithms already have control of your money market funds, your stocks, and your retirement accounts. They’ll soon decide who you talk to on phone calls; they will control the music that reaches your radio; they will decide your chances of getting lifesaving organ transplants; and for millions of people, algorithms will make perhaps the largest decision in their life: choosing a spouse.

Bully Market: My Story of Money and Misogyny at Goldman Sachs
by Jamie Fiore Higgins
Published 29 Aug 2022

Failing might cost me my career, though I was also afraid that my efforts to succeed might cost me the pregnancy. I pushed myself out of bed. “I know, Dan,” I sighed heavily. “I know.” In mid-September, Lehman declared bankruptcy. Then the next day the Fed bailed out insurance giant American International Group (AIG). In the weeks that followed, money market funds, where most businesses parked their overnight cash, lost close to $200 billion. We all lived in fear that Goldman was the next to go. My team did their part but that’s all I had control over. My eyes were pinned to the partners in the glass offices those weeks as I tried to read their body language.

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

And while significant efforts have been made to make it easier to unwind insolvent banks in an orderly way, the failure of a big, complex international bank could still be chaotic in the absence of a global regulator and watertight international agreements on how to wind it down and distribute the losses across national boundaries. Sheila Bair, chairman of the Federal Deposit Insurance Corporation between 2006 and 2011, puts the dilemma well. While acknowledging that some regulatory progress has been made, she has said: Sadly, banks remain too reliant on borrowed money and unstable, short-term funding. Money-market funds still pretend they are banks, risking destabilising runs. Though we have moved a chunk of unlisted over-the-counter derivatives into centralised trading and clearing systems, well over half the market remains in the shadows. A proposed ban on speculative trading languishes. Securitisation is unreformed… Millions of families that suffered in the Great Recession are only now clawing their way back.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Related Terms: • Cash and Cash Equivalents • Letter of Credit • Risk • Debt • Liability Banker’s Acceptance (BA) What Does Banker’s Acceptance (BA) Mean? A short-term credit investment created by a nonfinancial firm and guaranteed by a bank. Investopedia explains Banker’s Acceptance (BA) Acceptances are traded at a discount from face value on the secondary market. Banker’s acceptances are very similar to T-bills and often are used in money market funds. Related Terms: • Bond • Commercial Paper • Treasury Bill—T-Bill • Certificate of Deposit—CD • Money Market The Investopedia Guide to Wall Speak 19 Bankruptcy What Does Bankruptcy Mean? A legal proceeding initiated by a person or business that is unable to pay its outstanding debts; the bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common).

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace
by Matthew C. Klein
Published 18 May 2020

By the late 1960s and early 1970s, however, accelerating inflation meant that savers were losing money by leaving it in checking or savings accounts. American and international banks came up with an elegant solution that allowed them to sidestep banking regulations: they would sell short-term debt (commercial paper) to mutual funds that would then replicate the features of typical bank accounts. These money-market funds offered savers much higher yields and allowed European—and later Japanese—banks to access dollars for making loans. The appeal of these offshore dollars became apparent after the price of oil rose from $2 to nearly $40 a barrel over the 1970s. (Among the causes were soaring demand, dwindling production in the continental United States, and supply disruptions in the Middle East.)

Modern Monopolies: What It Takes to Dominate the 21st Century Economy
by Alex Moazed and Nicholas L. Johnson
Published 30 May 2016

Alibaba, which went public on the New York Stock Exchange in September 2014, controls 80 percent of China’s e-commerce market through its Taobao and Tmall platforms.5 Its Alipay platform is the largest payments platform in China. Alipay also allows users to put money into its Yu’e Bao Fund. At $94 billion as of January 2015, Yu’e Bao is one of the largest money market funds in the world.6 Whether you’re building a platform business or not, you can’t succeed in this economic environment without understanding how platforms work. Want to market your business direct to consumers online? Now you can, but you better rank well on Google. Want to get people to read your content?

Currency Wars: The Making of the Next Gobal Crisis
by James Rickards
Published 10 Nov 2011

The Fed has another problem in addition to the behavioral and not easily controlled nature of velocity. The money supply that the Fed controls by printing, called the monetary base, is only a small part of the total money supply, about 20 percent, according to recent data. The other 80 percent is created by banks when they make loans or support other forms of asset creation such as money market funds and commercial paper. While the monetary base increased 242 percent from January 2008 to January 2011, the broader money supply increased only 34 percent. This is because banks are reluctant to make new loans and are struggling with the toxic loans still on their books. Furthermore, consumers and businesses are afraid to borrow from the banks either because they are overleveraged to begin with or because of uncertainties about the economy and doubts about their ability to repay.

Nudge: Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Published 7 Apr 2008

First, employees do not seem to understand the risk-and-return profile of company stock. When the Boston Research Group surveyed 401(k) participants in 2002, it found that despite a high level of awareness of the Enron experience, half of the respondents thought that their own company stock carried the same or less risk than a money market fund. Another recent survey found that only a third of the respondents who owned company stock realized that it is riskier than a “diversified fund with many different stocks.”9 Second, plan participants tend to extrapolate past performance into the future. Employees of companies whose stock has been performing well over the previous ten years tend to invest much more in company stock than employees at firms that were performing poorly.

Red Flags: Why Xi's China Is in Jeopardy
by George Magnus
Published 10 Sep 2018

The amount of net borrowing in the repo market in 2015 stood at RMB 20 trillion, or almost $3 trillion.24 According to the People’s Bank of China, about 10 per cent was owed by insurance companies and foreign banks, 20 per cent by securities companies, 30 per cent by small- and medium-sized banks, and 40 per cent by ‘other’ entities, comprising credit cooperatives, financial leasing and trust companies, asset managers, money market funds, and off-balance-sheet vehicles such as wealth management products (WMPs). Institutions use the repo market because it offers access to low-cost and voluminous funding, which they can leverage and increase the effective returns. In other words, they can borrow cash (and give securities) and use it to buy more bonds, while others can take on securities (as collateral for lending cash), which they can, in turn, sell in a new transaction.

Why I Left Goldman Sachs: A Wall Street Story
by Greg Smith
Published 21 Oct 2012

It was then (and still is) the largest bankruptcy in U.S. history. With two investment banks down, it was only a matter of time before the rest of us were in the crosshairs. And the hits just kept on coming. The Dow lost just over 500 points on Monday the fifteenth, the biggest single drop since 9/11. Money market funds—the safest investment around, with minuscule rates of return—began notching negative returns. If you put your funds into a money market at that point, you would have gotten less back than if you’d stuck them in a mattress. The term for this is breaking the buck. No one thought this could ever happen.

The City
by Tony Norfield

It has provided extra funds, for a fee, to the European Central Bank, the Bank of England and other central banks to redistribute to their local banks and support financial market stability. The New York Times reported on why this move was also in US interests: In recent days some European banks have faced difficulties in borrowing dollars, whether from other banks or from money market funds in the United States. There was fear that if they could not borrow dollars, they would be forced to cut off loans to American companies or sell dollar-denominated assets, perhaps forcing prices down in already unsteady markets.29 The vulnerability of the European banks was a consequence of much of their business being conducted in US dollars, especially for international trade finance, so that it was (and is) critical for them to be able to access dollar funds.

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis
by Scott Patterson
Published 5 Jun 2023

he’d exclaim from time to time to his elite team of derivatives traders, borrowing a line from Steve Jobs (“It’s better to be a pirate than join the navy”). Covid-19 had sent shock waves through the global financial system. The Dow Industrial Average plunged 13 percent that Monday, its second biggest single-day fall ever, after 1987’s Black Monday. Bond markets froze. Money market funds saw their biggest outflows on record. Mom-and-pop investors were getting annihilated. Wall Street veterans had never seen anything like it—not even in the Global Financial Crisis. “The 2008 financial crisis was a car crash in slow motion,” Adam Lollos, head of short-term credit at Citigroup, told the Wall Street Journal.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini
Published 17 Oct 2022

The Fed bought $40 billion a month of residential mortgage-backed securities to ease mortgage rates, and corporate bonds to help corporate borrowers; so did other major central banks. The Bank of Japan went as far as buying public equities. As governments scrambled to stave off recession during the pandemic, unconventional tools proliferated. Bailouts and backstops rescued banks, non-bank shadow banks, broker dealers, money market funds, commercial paper markets, and households and corporate firms. By some measures, these unprecedented decisions worked exceedingly well: when, in March 2020, the economy threatened to freeze up—with a catastrophic dash for cash in which every bank wanted to hold on to their reserves and call in their loans to all major corporations—the Fed’s actions persuaded everyone to halt their panic, and continue to make the normal loans that are the basic fuel of any economy.

The Irrational Economist: Making Decisions in a Dangerous World
by Erwann Michel-Kerjan and Paul Slovic
Published 5 Jan 2010

With liquidity low and falling, additional selling brought falling prices down even more dramatically than would otherwise have been the case. As a result, prices fell further than the current fundamentals might have justified and credit became expensive and scarce. Unfortunately, the fear and concern around these declining markets led to runs—not only on markets and institutions, such as money market funds, but also on consumption. This resulted in dramatic and precipitous declines in economic activity that ultimately, though unnecessarily, validated the low levels of asset prices. This financial-intermediaries view emphasizes what I refer to as a “supply shock”—a collapse of internal capital in financial intermediaries that greatly magnifies a small price change and turns it into a crisis in the macroeconomy.

Augmented: Life in the Smart Lane
by Brett King
Published 5 May 2016

It is the single most successful banking product on the African continent today. It takes just 10 seconds to sign up for an M-Shwari savings account—10 seconds! But a more interesting statistic is that 80 per cent of M-Shwari customers have never visited a bank branch,7 and it is unlikely that they ever will. Yu’e Bao (pronounced “yu-eh bow”) is the largest money market fund in China today, but what makes this fund unique is that it is offered not by a bank but by Jack Ma’s Alibaba payments division called Alipay. In fact, Yu’e Bao is the most successful mobile banking product in the world. In just eight months, 81 million investors throughout China deposited an astonishing 554 billion yuan, or US$92.3 billion.

Irrational Exuberance: With a New Preface by the Author
by Robert J. Shiller
Published 15 Feb 2000

In this way the growth of 401(k) plans has encouraged the growth of public interest in the stock market relative to the real estate market. Indeed the typical 401(k) plan today offers choices among a stock fund, a balanced fund (typically 60% stocks and 40% bonds), company stock (investments in the employer itself), possibly a specialized stock fund such as a growth fund, a bond fund, and a money market fund, as well as fixed-income guaranteed investment contracts. It is not surprising, from the findings of the Benartzi and Thaler study, that people put proportionately more into the stock funds, given that so many stock-related choices are laid out before them. Moreover, since there are more interesting “flavors” of stocks—just as, in the corner liquor store, there are more varieties of wine than of vodka—more attention is likely to be drawn to them.

Cultureshock Paris
by Cultureshock Staff
Published 6 Oct 2010

See Resource Guide in Chapter 10 for the address of the city’s Lost and Found Departments. For lost bank cheques, call 08.92.68.32.08. For items lost or stolen on SNCF trains, call 01.55.31.58.40. French Banking There are many banks to choose from in Paris and these generally offer savings and current accounts, investment opportunities and money market funds. Take your time in choosing. Bring to each bank you are considering a list of questions concerning your particular banking needs. Ask too, if necessary, about the commission charged for processing an international cheque or electronic transfer of funds—these can be high and vary from bank to bank. 

Paper Promises
by Philip Coggan
Published 1 Dec 2011

They were happy for their deposit to be switched to another bank. That is a big change from two centuries ago and indicates that we all recognize that money is not just the change we have in our pocket. Ask people how much money they have and they will include the money held in their bank current accounts, any instant-access savings accounts, money-market funds and perhaps even the unused limits on their credit cards. All of these could be counted as money, in the sense that they could be quickly exchanged for goods and services. This very broad definition of money makes it even harder for economists to decide how much money there is in the system.

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

The point is not to bash regulators but to show how hard it is to classify a brand-new asset class, especially when it is the first digital native asset class the world has seen. WHAT IS AN ASSET CLASS, ANYWAY? While people accept that equities and bonds are the two major investment asset classes, and others will accept that money market funds, real estate, precious metals, and currencies are other commonly used asset classes,4 few bother to understand what is meant by an asset class in the first place. Robert Greer, vice president of Daiwa Securities, wrote “What Is an Asset Class, Anyway?”5 a seminal paper on the definition of an asset class in a 1997 issue of The Journal of Portfolio Management.

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History
by Jim Campbell
Published 26 Apr 2021

Picard’s astounding $2.0 billion in fees and expenses, and mounting, represent a 14 percent take on the $14.4 billion of recoveries, of which $7 billion came from a single source.11 As one Wall Street veteran put it to me: “That’s a good trade.”12 Not only has SIPC appeared to move the goalposts, but they’ve also shifted obligations within the same SIPA liquidation of Ponzi schemes. In “New Times Securities Services, Inc.,” the Ponzi scheme conned customers into investing in money market funds, two that were real—Vanguard and Putnam, and one that was nonexistent—“New Age Funds.” The money was never invested in either the real or fake funds. The Ponzi schemer, William Goren, just pocketed the money. SIPC came up with a seemingly illogical and contradictory position. Though all the investment activity was fake, the customers who thought they were invested in the real funds would be entitled to claims on the SIPC reserve fund, on the basis that it was money the brokerage didn’t invest that it should have.

Number Go Up: Inside Crypto's Wild Rise and Staggering Fall
by Zeke Faux
Published 11 Sep 2023

Most were pretty standard: short-term bonds. But there were also strange things, like investments in hedge funds and small bets on the prices of copper, corn, and wheat. The part of the holdings that seemed riskiest to me was billions of dollars of short-term loans to large Chinese companies. United States money-market funds avoided buying Chinese debt, because they viewed the country’s opaque financial system as risky, and, at the time, investors were speculating that the Chinese property market was in a dangerous bubble. Tether’s portfolio appeared to have debt issued by government-linked companies like Shanghai Pudong Development Bank, and real-estate developers like Shimao Group.

The Quants
by Scott Patterson
Published 2 Feb 2010

. … As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” While the collapse had started in the murky world of subprime lending, it had spread to nearly every corner of the financial universe, leading to big losses in everything from commercial real estate to money market funds and threatening major industries such as insurance that had loaded up on risky debt. But not every quant had been caught up in the madness. Few were sharper in their criticism of the profession than Paul Wilmott, one of the most accomplished quants of them all. Despite the freezing temperature outside, the bespectacled British mathematician was clad in a flowery Hawaiian shirt, faded jeans, and leather boots.

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff
by Christine S. Richard
Published 26 Apr 2010

It quickly became clear that Gotham’s views on Triple-A One were a major focus of the investigation. Triple-A One was an asset-backed commercial paper (ABCP) issuer set up by MBIA in an obscure but booming corner of the financial markets. It sold commercial paper to risk-averse investors such as money market funds and used the proceeds to purchase securities. Like a bank, Triple-A One borrowed short-term funds and made longer-term investments. Unlike a bank, it wasn’t regulated. The market for ABCP would top out at around $1.2 trillion in 2007 before plunging by two-thirds as investors questioned for the first time the quality of the assets backing the commercial paper.

The Global Citizen: A Guide to Creating an International Life and Career
by Elizabeth Kruempelmann
Published 14 Jul 2002

To find the best card for you, see www.frequentflier.com/card-intro.htm. 4. Financial institutions have also started offering their customers frequentflier miles. For example, you may be able to pay for your mortgage with a credit card that earns miles, or earn miles directly by investing in dedicated investment vehicles, like the American AAdvantage money market fund. 5. Phone companies are partnering up with airlines too. Use a long-distance phone company that is linked with the frequent-flier program of your choice. I use MCI Worldcom, which gives me five miles for every dollar I spend with them. Of course, I pay MCI with my American Airlines credit card to get even more miles!

The Code of Capital: How the Law Creates Wealth and Inequality
by Katharina Pistor
Published 27 May 2019

For a history and function of rating agencies, see John Coffee Jr., Gatekeepers: The Professions and Corporate Governance (Oxford: Oxford University Press, 2006), and Frank Partnoy, “How and Why Credit Rating Agencies Are Not Like Other Gatekeepers,” Legal Studies Research Paper Series: Research Paper No. 07–46 (2006):59–102. 7. See chapter 2. 8. NC2 Prospectus p. S-60. 9. NC2 Prospectus p. S-11. 10. FCIC Report (2011), chap. 7, p. 105. 11. For the central role that money market funds played in the securitization machine, see Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky, “Shadow Banking,” Federal Reserve Bank of New York Staff Reports 458, July 2010. 12. Note that in finance jargon, the terms “special purpose vehicle” or “special investment vehicles” are ubiquitous; however, in law they are structured like the good old trust we encountered in chapter 2 already. 13.

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens
by Nicholas Shaxson
Published 11 Apr 2011

That’s when we found out what happens when an advanced industrial economy tries to function with no cap at all on interest rates.” This probably overstates the case: There is no single explanation for the latest crisis. Still, Geoghegan has identified an important contributing factor. The elimination of usury caps spilled out into a wide variety of financial fields. Credit card debt, money market funds, and numerous other instruments that fueled the borrowing binge and the crisis—the removal of interest rate caps—had effects that are incalculable. Having helped deregulate and boost the supply of debt, Delaware also set about getting a share of the demand side. It did this by setting itself up as a major player in the securitization industry—the business of parceling up mortgages and other loans, including on credit cards, and repackaging the debt and selling it on.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

The reason is conceptually quite simple, but is extremely important nonetheless. Price-earnings valuations are very sensitive to interest rates; higher rates mean that the discounted future value of earnings or dividends (upon which stock prices depend) is greatly reduced. High rates also create competing investment opportunities; for example, if essentially riskless money market funds pay double-digit returns, as they often did in the late 1970s, stocks become less attractive investment alternatives. Therefore, P/E ratios tend to fluctuate inversely with interest rates. The effect of interest rates on stock valuations is presented graphically in the figures below. Two charts for the earnings-price ratio (the reciprocal of the more familiar price-earnings ratio) are shown for the postwar period; the first chart is not adjusted for interest rates, while the second one is.

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

One is ‘shadow banking', a term coined in 2007 to describe diverse financial intermediaries that carry out bank-like activities but are not regulated as banks.2 These include pawnbrokers, payday lenders, peer-to-peer lenders, mortgage lenders, investment banks, mobile payment systems and bond-trading platforms established by tech firms and money market funds. Between 2004 and 2014, the value of assets serviced by the ‘informal lending sector' globally rose from $26 trillion to $80 trillion and may account for as much as a quarter of the global financial system. Shadow-banking activities - borrowing, lending and asset-trading by firms that are not banks and escape their more onerous regulation - all have one thing in common: they funnel finance to finance, making money from moving existing money around.

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

I’m sitting here with my newest daily paper that I read, the Bond Buyer, on my lap. Who the hell would have thought that I’d be reading the Bond Buyer every day? The Bond Buyer costs $2,400 a year. I felt like asking for a daily subscription rate. We get these bid lists on failed auctions of tax-exempt money-market funds and other auction rate bonds and have been just picking them off. The same fund will trade at the same time on the same day from the same dealer at interest rates of 5.4 percent and 8.2 percent. Which is crazy, they’re the exact same thing, and the underlying loans are perfectly good. There is no reason why it should trade at 820, but we bid 820 and we may get one, while concurrently someone else buys exactly the same issue at 540.

…

If you’d told me ten weeks ago I’d be doing this, I’d have said that’s about as likely as me becoming a male stripper. We’ve put $4 billion into this stuff. It’s the most dramatic thing I’ve seen in my life. If this is an efficient market, dictionaries will have to redefine ‘efficient.’” Who would think that tax-exempt money-market funds could become cigar butts? “But the most immediate and doable opportunity is weird things in the credit market. And the biggest opportunity is in mortgages. But I don’t understand them well enough, although I’m learning them so that I can understand them. And if I think I’ve got enough margin of safety, I’ll do it.”

…

In “Mortgage Market Needs $1 Trillion, FBR Estimates,” Alistair Barr (MarketWatch, March 7, 2008) recaps a Friedman, Billings Ramsey research report that estimates that of the total $11 trillion U.S. mortgage market, only $587 billion was backed with equity—meaning that the average U.S. home had scarcely more than 5% equity. Before long, half of all CDOs would be backed by subprime mortgages (David Evans, “Subprime Infects $300 Billion of Money Market Funds,” Bloomberg, August 20, 2007). 7. In The Trillion Dollar Meltdown (New York: Public Affairs, 2008), Charles Morris explains that because the typical credit hedge fund was leveraged 5:1, the 5% equity was reduced to 1%—a 100:1 leverage ratio, or $1 of capital supporting $100 of debt. 8. He used derivatives himself, but as a borrower, not a lender.

Democracy Incorporated
by Sheldon S. Wolin
Published 7 Apr 2008

The term “democratization,” as Zakaria employs it, is given an elasticity that allows it to cover virtually any phenomenon he deplores. Thus the “masses” are declared to be “the primary engine of social change.” The proof is in the “democratic” character of capitalism whereby “hundreds of millions” have been “enriched.”35 Thanks to money-market funds “suddenly a steelworker . . . could own shares in blue-chip companies.”36 In news that should cheer the homeless, Chase Manhattan Bank is declared guilty of “catering to the great unwashed.”37 Similarly consumerism is the expression of democracy, consumerism conceived not as simple consumption but as the exercise of mass power.

Warnings
by Richard A. Clarke
Published 10 Apr 2017

“It’s not like I don’t add value to a conversation.”1 The host of the event was Gary Crittenden, the chief financial officer of Citigroup. At the time, Wall Street was being rocked by the unraveling of hedge funds, the meltdown of the mortgage industry, and problems with trusted investments like money market funds and previously secure firms like Bear Stearns. As the analysts chatted with Crittenden, one of the highest ranked analysts on Wall Street said he had given up trying to analyze Citigroup because it was too difficult. Hearing that, Whitney said, “I fell back on my heels.” Why should it be harder to analyze the largest bank in the world than any other financial institution?

The Investment Checklist: The Art of In-Depth Research
by Michael Shearn
Published 8 Nov 2011

Today, a large portion of Staple’s profits are derived from its delivery operations.14 Bob Graham, co-founder of AIM Management Group Inc., one of the nation’s largest mutual fund companies said, “When we started AIM Management Group Inc., we never had a plan. We followed opportunities as they came along. Our plan changed along the way, depending on what opportunities presented themselves. We had no idea that we would be in the money market funds business or in the equity funds business, nor did we have an idea of how big they would get.”15 Why Do Strategic Plans Fail? When CEOs set a strategic plan, they risk becoming committed to it and may fail to consider other alternatives. In the book Influence, author Robert Cialdini writes about “the commitment and consistency principle.”

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

The lesson is that early failure does not preclude long-term success, as long as one is receptive to change. STEVE LESCARBEAU The Ultimate Trading System Steve Lescarbeail's systems are the next best thing to a daily subscription to tomorrow's Wall Street Journal. Lescarbeau invests in mutual funds. His goal is to hold them while they are going up and to be in a money market fund while they are going down. He times these asset transfers with such precision that he more than triples the average annual returns of the funds he invests in while sidestepping the bulk of their periodic downturns. During the five years he has traded, Lescarbeau has realized an average annual compounded return of over 70 percent.

Financial Freedom: A Proven Path to All the Money You Will Ever Need
by Grant Sabatier
Published 5 Feb 2019

This is an okay option if it helps you sleep at night, but most savings accounts grow at less than 1 percent per year, so you will actually be losing money to inflation (which grows 2 to 3 percent per year). It’s always safe to keep some of your investments in cash in case of emergencies in what’s commonly called an emergency fund. Traditional wisdom recommends you save enough money to cover at least six months of your living expenses in cash in a simple savings account or money market fund. This allows you to have access to cash whenever you need it without having to sell any of your investments, which can be useful in case of an emergency or if you lose your job. If you believe you have a secure job and/or you have cash flow from multiple income sources (making you less reliant on one job), or if you have access to cash in other ways, then you might be okay saving less than six months’ worth of expenses and instead investing the extra money in stocks or bonds.

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
by Anatole Kaletsky
Published 22 Jun 2010

We are still left with the question of what is meant by printing money and whether the new amounts printed are dangerously large. As mentioned, money can be defined in myriad ways. To the extent that inflation is linked with any of these definitions, it is with ways of measuring broad money that include not just physical cash but also bank deposits, money market funds, and other assets that consumers and businesses can draw immediately and without significant cost. The monetary base, which consists of physical cash and electronic deposits held at the central bank by private banks, roughly doubled in the United States (from $900 billion to $2 trillion) in the year after Lehman.

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
by Satyajit Das
Published 15 Nov 2006

Chairman Greenspan might wax lyrical about the unbundling of risks but we spent most of our waking hours frantically rebundling the risks and stuffing them down the throats of any investor we could find. The name – inverse floater – hinted at the game we played. The investors in inverse floaters were typically money market fund managers or retail investors, a group that lost out when interest rates were low. The inverse floater provided high returns when interest rates fell or were low. It worked especially well when the yield curve was upward sloping (that is, short term rates were lower than longer term rates). The returns on the inverse floater are exactly the opposite of a conventional floater, which explained its appeal.

The Euro: How a Common Currency Threatens the Future of Europe
by Joseph E. Stiglitz and Alex Hyde-White
Published 24 Oct 2016

No sooner had Milton Friedman announced this new law of nature than nature played a trick on him, and on the countries that followed his dicta: the velocity of circulation started changing. Those of us who had studied more deeply the nature of financial markets understood and predicted these changes. New forms of financial instruments, like money market funds that we now take for granted, were coming into play, and there were changes in the regulations governing financial markets. Monetarism swept the world of central bankers as the cult of the day. It was based on a simplistic model. It could be grasped easily by central bankers with limited abstract capacities, and it provided rich opportunities for empirical testing.

Super Pumped: The Battle for Uber
by Mike Isaac
Published 2 Sep 2019

The lifecycle of a VC fund is typically ten years, by the end of which these LPs expect returns of at least 20 to 30 percent on their initial investments. Venture capital is risky. Roughly one-third of VC investments will fail. But a heightened “risk profile” comes with the territory. If institutional investors prefer lower-risk investments, they can stick to reliable municipal bonds or money market funds. With low risk comes low returns. To compensate for such high failure rates, VCs tend to spread their investments across a number of different industries and sectors. One grand slam investment with a return of ten, twenty, even fifty times the amount of the investment can make up for an entire investment portfolio of losses or weakly performing startups.

The Bank That Lived a Little: Barclays in the Age of the Very Free Market
by Philip Augar
Published 4 Jul 2018

The two weeks following the demise of Lehman and AIG were the most traumatic fortnight in financial markets since the Great Crash of 1929. Regulators steered Washington Mutual, America’s largest savings and loan bank, into the safe hands of J. P. Morgan.9 Former Barclays director Steel organized a rescue of Wachovia by its former rival Wells Fargo. America had its Northern Rock moment when Reserve Primary, a cast-iron money market fund where risk-averse savers put their money, announced it could repay only 97 cents of each dollar, an event known as ‘breaking the buck’. The public suddenly realized what this meant for them and the US government rushed through an insurance scheme to prevent mass withdrawals. Iconic American financial institutions were falling like dominoes and the effects were felt instantly in the UK.

Adam Smith: Father of Economics
by Jesse Norman
Published 30 Jun 2018

If savers all seek their deposits at once, however, the bank cannot meet the demand from cash on hand; and if the bank is not large enough, or cannot borrow enough in time from the money markets for other reasons to cover the shortfall, it will quickly fail. This is what happened with the collapse of Northern Rock in the UK and Washington Mutual in the US in 2008. Almost exactly the same process can operate with the failure of money market funds; and of bank lending to businesses against collateral, or trading on margin. A relatively small initial market movement can quickly become a rout, as occurred with the failures of the investment banks Bear Stearns and Lehman Brothers. Our understanding of these channels of destabilization has greatly improved in recent years, in part due to the pioneering work of Hyman Minsky.

The Future Is Asian
by Parag Khanna
Published 5 Feb 2019

And the $3 trillion in mobile payments made in China each year is far more than in any other country.45 Chinese finance and lifestyle apps by Alibaba, Tencent, Baidu, and Ping An Insurance are more comprehensive than those of their Western counterparts Microsoft, Amazon, Facebook, and Google, providing payment, insurance, loan, and credit-rating services, as well as money market funds, wealth management, crowdfunding, and currency exchange. These Chinese platforms are also spreading more rapidly across Asia through joint ventures. Alibaba owns 80 percent of the Southeast Asian e-commerce marketplace Lazada Group, while Alibaba’s Ant Financial has partnerships with Korea’s KakaoPay, Thailand’s Ascend Group, Mynt in the Philippines, Emtek in Indonesia, and Telenor Pakistan.

Super Continent: The Logic of Eurasian Integration
by Kent E. Calder
Published 28 Apr 2019

This state backing apparently represented, however, more a broad government policy of limiting foreign access to the financial sector rather than targeted support for Alibaba. This firm succeeded in the Chinese market in the face of fierce 114 chapter 5 d­ omestic competition through creative corporate strategies. Indeed, its innovative Alipay system of e-based credit, as well as its Yu’ebao money market fund with attractive consumer deposit rates, undermined the UnionPay system of the state-owned banks and is leading China into a cashless credit age.56 Alibaba, one of the world’s preeminent e-commerce firms, is intrinsically in the business of interconnection. Its core e-commerce business still provides 86 percent of its revenue, and only 8 percent comes from international markets.57 It is, however, expanding rapidly in Southeast Asia and India and will likely be a powerful figure in reconnecting the Eurasian continent in future years.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

The Northern Rock bank run in 2007, the first UK bank run since 1866, brought back the old narratives of panicked depositors and angry crowds outside closed banks. The story led to an international skittishness, to the Washington Mutual (WaMu) bank run a year later in the United States, and to the Reserve Prime Fund run a few days after that in 2008. These events then led to the very unconventional US government guarantee of US money market funds for a year. Apparently, governments were aware that they could not allow the old stories of bank runs to feed public anxiety. In the heart of the 2007–9 recession, the Great Depression narrative may have intertwined with bank run narratives to create this popular perception: “We have passed through a euphoric, speculative, immoral period like the Roaring Twenties.

The Tyranny of Nostalgia: Half a Century of British Economic Decline
by Russell Jones
Published 15 Jan 2023

It offered a guarantee to any fund that was willing to pay an insurance fee, with the cover backed by $50 billion taken from the Exchange Stabilization Fund. The latter had been established in 1934 to manage the dollar’s value in the wake of the collapse of the Gold Standard. It was the only source of funds immediately available. The shock waves from the Lehman bankruptcy, the near failure of AIG and the loss of confidence in US money market funds were immediately felt in the UK. The banking sector had borrowings of around £750 billion that had to be regularly refinanced, and at a stroke this became much harder. LIBOR–OIS spreads – a widely used measure of credit risk in the banking system – surged, eventually peaking at more than 350 basis points, while financial stock prices slumped further.13 It became clear that several UK banks – most notably Royal Bank of Scotland (RBS), HBOS and Bradford & Bingley − had no viable future as then configured.

Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning
by Jonquil Lowe
Published 14 Jul 2010

Triodos bank www.triodos.co.uk Yahoo Finance http://uk.finance.yahoo.com Z01_LOWE7798_01_SE_APP.indd 408 05/03/2010 09:51 Index 130/30 funds 329 absolute return funds 328–9 active funds 309–11 additional voluntary contribution (AVC) in defined benefit pensions 195 mis-selling of 52 in ocupational pensions 201–2 adjustable excess in PMI premiums 124 advisory investments advice 48 all-in-one mortgage 165 annual management charge on investment funds 308–9 Annual Percentage Rate (APR) 33 annuities capital protection 238–9 choice of 232–40 in defined contribution scheme 231 income drawdown 241–3 increasing 235–7, 243 investment-linked 237–8, 244 level annuities 233 and pension schemes 185 rates 233–5 short-term 232, 239 staggered buying of 243 annuity with guarantee 101, 239 aspirations of financial planning 6–9 asset allocation 299–304 correlations 301 Z01_LOWE7798_01_SE_INDX.indd 409 funds 324 rebalancing 303–4 Association of Tax Technicians 52 attitudes to financial planning 8–9 balance sheet, household 17–21 Bank of England base rate (1984–2009) 172 bankruptcy 35 beliefs and financial planning 8–9 benefits advice 53 bereavement benefits 95–7 after retirement 96–7 before retirement 95–6 beta 299 Beveridge system 177 bonds 285–9 as asset 300 confusion over 254 interest rates 285–6 redemption 286 risk 287–8 borrowing 31–5 APR 33 BSE Sensex 298 buying power, inflation on 29 capital gain or loss on shares 289 capital gains, taxation of 263 capital gains tax 347–8 in UK tax system 371–80 05/03/2010 09:50 410 Index capital outlay on mortgages 150–3 capital protection annuity 238–9 capital risk in investments 253, 255–9 on residential property 330 capital shares 316 capitation schemes for dental treatment 128–9 capped-rate mortgage 162, 164 cash and carry investments 314 cash as asset 300 cashback mortgage 164 chargeable gain 268 Chartered Institute of Taxation 52 child tax credit 97 child trust funds (CTF) 274–6 children, and intestacy 339 circumstances and financial planning 8–9 Citizens Advice 53 civil partner, and intestacy 339 co-payment of PMI premiums 124 cohabitees, protecting 354 collaborative financial planning 38 collectibles 332–3 commercial property as income source 303 commission payments 42 in DIY financial planning 53–4 commodities 324 compensation from financial advisers 59–60 Competition Commission 44 on payment protection insurance 84–5 complaints against financial advisers 58–9 complete DIY financial planning 37 complex investment funds 327–9 guaranteed products 327–8 protected products 327–8 Z01_LOWE7798_01_SE_INDX.indd 410 comprehensive state provision of longterm care 137 Consumer Price Index (CPI) 28 contributory employment and support allowance (ESA) 73 council rented housing security 105 council tax benefit 98 covered call funds 329 critical illness insurance 80–3 core conditions 81 and term insurance 108–9 cross-holdings, return on 318 Crown, and intestacy 339 DAX index 298 dealing charges 288 death in service 99 debt 13, 31–5 debt relief orders 35 decreasing term insurance 110 deferred-care plans 139 deferred period in IP insurance 78 defined benefit pension schemes 99 in occupational pensions 195–7 other choices 230–1 tax-free cash 228–30 defined contribution pension schemes 99 new scheme from 2012 205 in occupational pensions 197–8 other choices 231 personal pensions 206 tax-free cash 227–8 delegated financial planning 38 dental treatment 126–30 capitation schemes 128–9 insurance 129 private, costs 128 resources for 126–7 self-paying 127–8 stress testing and review 129–30 05/03/2010 09:50 Index derivatives 325–7 disability, protection from 72–88 employer, help from 75 plan for 75–85 critical illness insurance 80–3 Holloway plans 79–80 income protection insurance 76–9 state, help from 72–4 state provision of long-term care 133 stress testing and review 86–8 disclosure of material facts 82 discounted-rate mortgage 161, 163–4 discretionary management investments 48 discretionary trusts 340 diversification of investments 295–9 amount needed 296–9 and risk 296–7 dividends and income tax 266 on shares 289 DIY financial planning 37 and commission 53–4 Dow Jones Industrial Average 298 downsizing 246 emergency funds 84, 279 employer, help from disability protection 75 family protection 99–102 lump sum payments 99–100 survivor pensions 100–2 unemployment protection 69–70 employer contributions to pension schemes 186 employment and support allowance (ESA) 68 sickness or disability protection 72–3 endowment mis-selling 51 Z01_LOWE7798_01_SE_INDX.indd 411 411 endowment mortgage 158, 159, 160 energy saving measures 16 equities as assets 300 equity – emerging markets 324 equity – sector funds 324 equity – UK shares 323 equity global shares 324 equity income shares 323 equity release 46, 247–9 choosing 251 home reversion 249 and inheritance planning 354 lifetime mortgages 247–8 stress test and review 249–50 and tax 250 escalating annuity 236 estate, reducing inheritance tax on bypassing the estate 350–1 limiting growth of 352–3 estate planning advice 52–3 ethical savings products 284–5 ethical investment funds 323 European Economic Area (EEA) 116, 118 European Health Insurance Card (EHIC) 118 exchange-traded funds 319–20 execution-only investments advice 48 extra pension option 221–3, 224–5 family, provision for assessing needs 89–105 employer, help from 99–102 housing security 104–5 protection calculator 94–5 protection level 91–5 protection period 91 savings, pensions, insurances 103–4 state, help from 95–8 assessing protection gap 105–6 05/03/2010 09:50 412 Index family, provision for (continued) budget template 92–3 implementation 106–12 family income benefit 109 life insurance 112 maximum policy protection 111–12 term insurance 107–11 stress testing and review 112–13 financial advisers commission payments 42 expectations of 38–53 on benefits 53 equity release 46 estate planning 52–3 on insurance 44–5 on investments 47–50 money guidance 42–4 on mortgages 45–6 overall planning 41–2 on pensions 46–7 Retail Distribution Review 50–2 summary 39–41 taxation 52–3 protection under 54–61 compensation 59–60 complaints 58–9 financial planning 4–27 approaches to 37–8 aspirations 6–9 building the plan 22 execution of 24–6 framework for 5 resources for 10–21 review of 27 stress test of 22–3 Financial Services Authority and Money Guidance 42–4 on mortgages 166–7 product comparisons 25, 166 Retail Distribution Review 50–2 fixed-income bonds 323 Z01_LOWE7798_01_SE_INDX.indd 412 fixed-rate (long term) mortgage 162 fixed-rate (short term) mortgage 162, 163 flexible mortgage 164 frequency of payment of PMI premiums 123 friendly society plans 276–7 FTSE100 index 298 full underwriting of private medical insurance 121 fund-of-funds 324 futures 325–7 gearing 315 genetic tests for IP insurance 79 for life insurance 108 goals of financial planning 6–8 gold 331–2 grossing up 265 group discounts in PMI premiums 124 group personal pension scheme (GPPS) 203 guaranteed equity bonds 282–3 guaranteed investment products 327–8 health discount in PMI premiums 124 hedge funds 328–9 hedging with options 326–7 high income, taxation of 9 Holloway plans 79–80, 84 home reversion 249 Homeowners Mortgage Support Scheme 169 household budget 10–13 balance sheet 17–21 improvements to 13–16 template for 11–12 housing equity, using 244–51 05/03/2010 09:50 Index equity release schemes 247–9 resources 246 price inflation 147 rent or buy 146–9 rented 146–9 see also own home housing benefits 98 housing costs, help with 98 housing security and family protection 104–5 and intestacy 339 hurdle rate 317 hybrid pension schemes 199 Icelandic banks 55 immediate-care plan, long-term 138–9 In-the-driving-seat financial planning 38 income fall in and mortgages 168–70 protecting from sickness or disability 72–88 from unemployment 67–72 see also high income; low income income-based employment and support allowance (ESA) 73 income-based jobseeker’s allowance 98 income drawdown 102 in defined contribution scheme 231 for retirement 241–3, 244 income protection insurance 76–9, 84 exclusions 77 income risk and investments 253, 259–60 on residential property 231 income shares 316 income support 98 income tax and dividends 266 on inheritance 348–9 Z01_LOWE7798_01_SE_INDX.indd 413 413 gifts to minor children 348–9 gifts you still benefit from 349 and life insurance 266–9 and savings 264–6 in UK tax system 358–69 tax-free and taxable income 359–60 increasable term insurance 110 increasing annuities 235–7, 243 increasing term insurance 110 independent advisers 49, 50 Independent financial advisers (IFAs) 41 index-linked gilts 258 Indian banks 55 individual savings accounts (ISAs) 272–4 and pension schemes 275 Individual Voluntary Agreement (IVA) 35 inflation and buying power 29 impact of 28–31 and income protection 86 inflation risk 255–60 inheritance capital gains tax 347–8 income tax 348–9 gifts to minor children 348–9 gifts you still benefit from 349 reducing tax 350–4 bypassing the estate 350–1 cohabitees, protecting 354 equity release 354 estate, limiting growth of 352–3 lifetime gifts 351–2 tax-free bequests 351 using nil-rate band 351 stress testing and review 355 and tax 341–9 basics 342–4 05/03/2010 09:50 414 Index inheritance (continued) on estate 344 gifts with reservation 346–7 lifetime gifts 344–6 workings of 343 trusts 340–1 who inherits 335–40 intestacy 338–9 wills if there is no will 337 reasons for 339–40 Institute of Financial Planning 41 insurance choosing and buying 87–8 costs 87 for dental treatment 129 and family protection 103–4 life insurance 112 term insurance 107–11 for long-term care 139–40 insurance advice 44–5 insurance policies 103 interest-in-possession trusts 340 interest-only mortgage 158, 246 interest rate decisions on mortgages 160–4 intestacy 338–9 in Scotland 338 investing in new companies 277–8 investment advice 47–50 investment clubs 314 investment element in Holloway plans 80 investment funds 307–24 active and passive 309–11 choice of 323–4 complex 327–9 forms 312–22 information about 311 pros and cons of using 307–9 investment-linked annuities 237–8, 244 Z01_LOWE7798_01_SE_INDX.indd 414 investment trusts 314–16 investment-type life insurance 106 investments bonds 285–9 buying and selling 288–9 collectibles as 332–3 diversification of 295–9 amount needed 296–9 and risk 296–7 gold as 331–2 ‘low-risk’ 23 mis-selling of 51–2 ranked by risk and return 256 real return since 1908 257 residential property as 330–1 in shares 289–91 taxation of 260–78 Irish banks 55 Islam Shariah-compliant mortgages 168 Shariah-compliant products 284–5 Islamic insurance 80 Jobcentre Plus 68 Jobseeker’s allowance (JSA) 67–8 joint-life-last-survivor annuity 101–2, 239–40 joint ownership of savings 103–4 LAUTRO 45 Lehman Brothers 23 level annuities 233 leverage 20–1, 315, 316 effects of 21 life insurance 106–7 buying 112 and income tax 266–9 regular-premium policies 267 single-premium policies 267–9 as investment 320–2 life-of-another insurance 111 life savings, lost 23 05/03/2010 09:50 Index lifestyling funds 306, 324 lifetime annuity 232 lifetime gifts, reducing inheritance tax 351–2 lifetime mortgages 247–8 liquidity risk 253, 255–9 on residential property 330 loan-to-valuation mortgages 153 lodgers 246 long-term care 130–41 choosing 141 deferred-care plans 139 and housing equity 245 immediate-care plan 138–9 insurance for 139–40 and pension schemes 211 self-paying 138 state provision 131–7 stress testing and review 141 low income and debt 32–3 housing grants and loans 246 income-based ESA 73 NI credits 189 saving for retirement 206 sickness or disability protection 84 and state benefits 15, 95 and support for mortgages 169 unemployment, protection from 68 lump sum payments from deferred state pension 221, 223–5 for family protection 99–100 after retirement 100 death in service 99 means-tested benefits 98 method of payment of PMI premiums 123 Money Guidance 42–4 money guidance advice 42–4 Money Management 82 money market funds 323 monthly outlay on mortgages 154–6 moratorium underwriting of private medical insurance 121 mortgage advice 45–6 mortgage indemnity guarantee 153 mortgage payment protection insurance 84 Mortgage Rescue Scheme 169 mortgage-to-rent schemes 170 mortgages 150–75 capital outlay 150–3 choosing 156–65 all-in-one mortgage 165 interest rate decisions 160–4 types 158–60 monthly outlay 154–6 resources 156, 157 review 173–5 and secured loans 45–6, 145 Shariah-compliant mortgages 168 shopping around 166–7 stress testing 168–73 income, fall in 168–70 negative equity 173 payments, rise in 171–3 multi-tied advisers 49 mutual principle in Holloway plans 79 market risk 297 market value reduction on insurance policies 322 maximum policy family protection 111–12 National Health Service 114 dental treatment charges 127 waiting times 116 National Insurance 67 and pension contributions 177 Z01_LOWE7798_01_SE_INDX.indd 415 415 05/03/2010 09:50 416 Index National Insurance (continued) and credits 188–9 to state pension 190 in UK tax system 370–71 National Savings and Investments (NS&I) 257–8 negative equity 20, 173, 248 NHS continuing care, long-term 135 nil-rate band in inheritance 342–3 reducing tax 351 no claims discount PMI premiums 123 no-negative equity guarantee 247 non-priority debts 34 non-taxpayers 264 and ISAs 273 nursing home, long-term care in 134–5 occupational pensions 47, 194–206 amount of pension 199–201 compensation 61, 215 complaints 61 closure of 214–15 defined benefit schemes 195–7 defined contribution schemes 197–8 hybrid schemes 199 increasing deferring retirement 203 extra contributions 201–2 salary sacrifice 202–3, 204 other schemes 203–5 tax-free cash 227–30 when eligible 199 when starting 225–6 open-ended investment companies (OEIC) 313–14 options 325–7 hedging with 326–7 speculating with 327 ordinary shares 291 Z01_LOWE7798_01_SE_INDX.indd 416 own home advantages and disadvantages 149 long-term care in 131–4 mortgage for 150–75 owner occupied housing security 104 partnership in state provision of long-term care 137 unmarried, and intestacy 338–9 passive funds 309–11 pay-out in Holloway plans 78 in IP insurance 78 payment protection insurance for sickness or disability protection 83–5 for unemployment 70–1 payments, rise in and mortgages 171–3 pension calculator 180, 182, 183 pension credit 98 pension schemes 99 and changing jobs 213–14 and ISAs 275 joining 196 and long-term care 211 new scheme from 2012 205–6 tax treatment of 184 as tax wrappers 184, 210 see also occupational pensions; personal pensions; state pensions pensions advice on 46–7 and family protection 103–4 and housing equity 245 increasing deferring pension 194 deferring retirement 203 extra contributions 192–3, 201–2 05/03/2010 09:50 Index salary sacrifice 202–3, 204 switching from married women’s reduced rate 193–4 resources 182–7 review 213–15 changing jobs 213–14 pension scheme closure 214–15 saving for 177–82 before-tax income 179 and spending 179 targets 179–83 stress testing 211–12 see also occupational pensions; personal pensions pensions, mis-selling of 51 pensions funds 103 as investment 320–2 personal pensions 47, 206–11 amount of pension 211 tax-free cash 227–30 tax relief and contributions 185–6, 207 when eligible 211 when starting 225–6 planned debt 13 polarisation 49 potentially exempt transfers (PETs) in inheritance 342–3 pre-owned assets tax 349 precipice bonds mis-selling 52 preference shares 290 premium bonds 282–3 premiums in IP insurance 78 in private medical insurance 122–3 in term insurance 107–8 priority debts 34 private health care 115–26 costs 120 medical insurance 120–5 Z01_LOWE7798_01_SE_INDX.indd 417 417 resources for 118–19 self-paying 119–20 stress testing and review 125–6 private medical insurance 120–5 choosing 124–5 cost of 122–4 coverage 121 how it works 121–2 switching policies 124–5 private rented housing security 105 property as asset 300, 324 protected investment products 327–8 protection-only life insurance 106 protection under financial advisers 54–61 compensation 59–60 complaints 58–9 public sector pension schemes 99 reducing balance loan 158, 159 redundancy 69–70 relationship breakdown and pension schemes 212 relatives, and intestacy 339 renewable term insurance 110–11 Rent-a-Room Relief 15, 359 rented housing 146–9 advantages and disadvantages 149 repayment mortgage 158 repossession 169 residential home, long-term care in 134–6 residential property as investment 330–1 Retail Distribution Review 50–2 Retail Prices Index (RPI) 28 retirement before-tax income 179 bereavement benefits after retirement 96–7 05/03/2010 09:50 418 Index retirement (continued) before retirement 95–6 and carrying on working 218–19 changing nature of 216–19 choices 220–44 deferring state pension 220–5 extra pension option 221–3 starting occupational pension 225–6 tax-free cash 226–30 deferring 203 lump sum payments after 100 spending in 179 stress testing and review 243–4 tax-free lump sum 186 retirement income 187–211 occupational pensions 194–206 see under own entry personal pensions 206–11 see under own entry state retirement pensions 187–94 see under own entry return on cross-holdings 318 risk balancing 256–60 in diversification 296–7 and return 254–6 timeframe and 253–4 risk aversion 8 RPI-linked annuity 236 salary sacrifice in ocupational pensions 202–3, 204 sale-and-rent-back schemes 170 savings bonds 285–9 and family protection 103–4 and income tax 264–6 products 280–2 premium bonds 282–3 savings accounts and bonds 279–82 Z01_LOWE7798_01_SE_INDX.indd 418 Shariah-compliant products 284–5 structured products 282–3 taxation of 260–78 for unemployment protection 70 savings accounts and bonds 279–82 savings CTF 275 savings Gateway 277 savings income, tax-free 264 savings income paid gross 265–6 savings income paid net 264 Scotland dying intestate 338 personal care in 134 secured loans and mortgages 45–6, 145 self-invested personal pensions 210– 11 self-pay route for dental treatment 127–8 for long-term care 138 for private health care 119–20 separated spouse, and intestacy 339 shared equity scheme on mortgages 169–70 shares 289–91 preference or ordinary 290 Shariah-compliant mortgages 168 Shariah-compliant products 284–5 short-term annuity 232, 239 shortfall risk 260 sickness, protection from 72–88 main statutory benefits 74 see also under disability, protection from single-life annuity 101 social fund grants and loans 98 Society of Trust and Estate Practitioners (STEP) 53 specific risk 297 speculation with options 327 split-capital investment trusts 316–19 05/03/2010 09:50 Index spread 288 stakeholder CTF 276 stakeholder pension schemes 205, 208–10 stamp duty land tax 150, 152 standard-variable rate mortgage 161, 164 starting-rate taxpayers 264 and ISAs 274 state, help from disability protection 72–4 family protection 95–8 bereavement benefits 95–7 means-tested benefits 98 tax credits 97–8 low income 15, 84 unemployment protection 67–8 state earnings-related pension scheme (SERPS) 189, 191 state provision of long-term care 131–7 capital limits for assistance 136 changes to 136–7 in own home 131–4 in residential home 134–6 state retirement pensions 187–94 additional pension scheme 189–92 amount of pension 192 basic pension 187–8 couples, rules for 189 increasing deferring pension 194 extra contributions 192–3 switching from married women’s reduced rate 193–4 NI contributions and credits 188–9 state second pension scheme (S2P) 189–90, 191–2 statutory sick pay 75 stock-and-shares CTF 276 structured products 283–4 Z01_LOWE7798_01_SE_INDX.indd 419 419 student loans 31–2 survivor pensions 100–2 taper relief in CGT 345 target dating funds 306, 324 tax credits and family protection 97–8 in UK tax system 381–6 tax-free bequests 351 ‘tax-free’ investments 271 tax-free lump sum at retirement 186 in defined benefit pension 228–30 in defined contribution pension schemes 227–8 tax-free savings income 264 tax relief on pension contributions 185 tax wrappers incentive schemes 270–8 child trust funds 274–6 friendly society plans 276–7 individual savings accounts 272–4 investing in new companies 277–8 savings Gateway 277 for investments 261 pension schemes as 185–6, 210 taxation advice on 52–3 of capital gains 263 on inheritance 347–8 income tax on inheritance 348–9 gifts to minor children 348–9 gifts you still benefit from 349 and inheritance tax 342–7 basics 342–4 on estate 344 gifts with reservation 346–7 lifetime gifts 344–6 reducing 350–4 workings of 343 on residential property 231 05/03/2010 09:50 420 Index taxation (continued) of savings and investments 260–78 taxpayers and ISAs 274 types 262–3 term insurance 106–11 and critical illness insurance 108–9 family income benefit 109 premiums 107–8 types 107–11 terminal bonus in insurance policies 322 third-way products 243 tied advisers 49, 50 time and diversification 304–7 total expense ratio of investment funds 309 tracker funds 319–20 tracker rate mortgage 161, 164 transaction-only debt 13 transparency, lack of in insurance policies 322 trusts, inheritance 340–1 UK tax system capital gains tax 371–80 income tax 358–69 tax-free and taxable income 359–60 National Insurance 370–1 tax collection 380 tax credits 381–6 unemployment, protection from 67–72 Z01_LOWE7798_01_SE_INDX.indd 420 employer, help from 69–70 plan for 70–1 payment protection insurance 70–1 savings 70 state, help from 67–8 stress testing and review 71–2 unit-linked fund 238 unit trusts as investment fund 313–14 unmarried partner, and intestacy 338–9 value-for-money in pension schemes 211, 212 wealth, managing derivatives 325–7 diversification 295–307 asset allocation 299–304 of investments 295–9 over time 304–7 investment funds 307–24 stress testing and review 333–4 whole-of-life insurance fund 321 widowed parent’s allowance 96 wills 104 if there is no will 337 reasons for 339–40 with-profits fund 238, 321 working tax credit 97 zeros 316–17 05/03/2010 09:50 

Trend Following: How Great Traders Make Millions in Up or Down Markets
by Michael W. Covel
Published 19 Mar 2007

Related stocks jump off cliffs in sympathy. Delta hedges are selling more stocks short to rebalance their positions. The naked options I am short are going through the roof. Millions of investors are blindly following the headlines. Listless as zombies, they are liquidating their stocks at any price and piling into money market funds with an after tax yield of –1 percent. ‘Stop you fools!’ I scream. ‘There’s no danger! Can’t you see? The headlines are inducing you to lean the wrong way! Unless you get your balance, you’ll lose everything—your wealth, your home!’”58 Niederhoffer seems to have a difficult time accepting blame.

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History
by Kirsten Grind
Published 11 Jun 2012

“We usually agreed on policy,” he wrote about Bair, “but she tended to view the world through the prism of the FDIC—an understandable but at times narrow focus.”13 Paulson would, at least on one occasion, leave Bair out of crucial discussions about regulatory policy. For example, he forgot to tell her that the government planned to guarantee money market funds during the financial crisis, a change on which he should have consulted her. She called him up angrily, admonishing him for the misstep.14 Said one of her critics: “She has quite an ego and she loves praise,” and “there’s almost a certain insecurity on her part.” As the head of the FDIC, Bair ran an independent government agency with a grand, long-standing mission: to protect the money of bank customers across the country.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

Today commercial banks hold almost six times the savings of thrift institutions.50 In May 2014, 78.7 percent of savings deposits and small-denomination time deposits was held in commercial banks. Savings institutions, meanwhile, held 14.2 percent of these deposits, with the remaining deposits invested in retail money market funds.51 Investment Advisers (Separate Accounts) Since the beginning of asset accumulation there have been investment clients—those who have acquired resources and have sought outside experts to manage all or part of their holdings. As discussed at length in chapter 1, ancient Mesopotamians, Egyptians, Greeks, and Romans employed agents to manage their agricultural properties, lending businesses, and trade activities.

Digital Accounting: The Effects of the Internet and Erp on Accounting
by Ashutosh Deshmukh
Published 13 Dec 2005

GAAP CI taxonomy ID Weight Balance Label Description 303 0 Debit Monetary Type usfr-gc NS Assets (usfr-gc: Assets) Con 6 304 1 Debit Monetary usfr-pt Current Assets (usfr-pt: TotalCurrentAss ets) 305 1 Debit Monetary usfr-pt 306 1 Debit Monetary usfr-pt Cash, Cash Equivalents and Short Term Investments (usfr-pt: CashCashEquiv alentsShortTerm Investments) Cash and Cash Equivalents (usfr-pt: CashCashEquiv alents) Probable future economic benefit obtained or controlled by an entity Sum of all current assets those assets that are reasonably expected to be realized in cash or sold or consumed within a year or within the normal operating cycle of the entity Cash and short term investments with an original maturity less than one year, including restricted cash SFAS 6; ARB 43 6 307 1 Debit Monetary usfr-pt Cash and short term, highly liquid investments that are readily convertible to known amounts of cash and are so near their maturity that they present negligible risk of changes in value due to changes in interest rates usually with an original maturity less than 90 days, This includes restricted cash, treasury bills, commercial paper and money market funds and other operating cash balances Unrestricted cash available for day-to-day operating needs 318 -1 Credit Monetary usfr-pt Cash (usfr-pt: Unrestricted Cash) Allowance for Doubtful Accounts (usfr-pt: AllowanceDoub tfulAccounts) Reference FAS 95 7 Estimate of uncollectible trade A/R that reduces the gross receivable to the amount expected to be collected and drill down to paragraphs and subparagraphs of relevant literature.

The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley
by Jimmy Soni
Published 22 Feb 2022

When asked about his business plan by Mutual Fund Market News, he emphasized X.com’s “nonlinear” approach compared to existing financial services companies: “To have someone’s entire financial wealth on a single statement sheet—loans, mortgages, insurance, bank accounts, mutual funds, stock holdings—is revolutionary.” Musk declared that by year’s end, X.com would have an S&P 500 mutual fund, a US aggregate bond fund, and a money market fund all up and running. Musk believed that with the alchemy of the internet and his own boundless initiative, X.com could deliver these services cheaper, faster, and better than existing players could. “X.com had very high aspirations,” observed an early employee, Chris Chen. “I think the online bank was just a core component of the product—but we wanted to be a financial supersite.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society
by Binyamin Appelbaum
Published 4 Sep 2019

Concerned that other companies would struggle to access short-term credit markets, regulators allowed banks to offer higher interest rates on large deposits, basically creating an alternative intermediation process for companies to access funding. The measure remained on the books after the crisis passed. 6. A signature feature of these accounts is that shares were priced at exactly $1, fostering an illusion of stable value. The money market funds rose from almost nothing in 1978 to hold $200 billion — or 15 percent of all deposit dollars — by 1982. 7. Merrill Lynch introduced its “cash management account” in 1977, allowing investors in a money market mutual fund to write what were basically checks. The chief executive, Donald Regan, became Treasury secretary under Reagan — and in that role, a leading advocate of deregulation.

Antifragile: Things That Gain From Disorder
by Nassim Nicholas Taleb
Published 27 Nov 2012

Somehow these managers have been given free options by innocent savers and investors. I am concerned here with managers of businesses that are not owner-operated. As I am writing these lines the United States stock market has cost retirees more than three trillion dollars in losses over the past dozen years compared to leaving money in government money market funds (I am being generous, the difference is even higher), while managers of the companies composing the stock market, thanks to the asymmetry of the stock option, are richer by close to four hundred billion dollars. They pulled a Thales on these poor savers. Even more outrageous is the fate of the banking industry: banks have lost more than they ever made in their history, with their managers being paid billions in compensation—taxpayers take the downside, bankers get the upside.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

So I think that people who are in finance today have a moral obligation to help advance the trend toward democratisation of finance.48 So how will more financial engineering help us out of the hole left by the global crisis? Some say the working-class “democratization” was just feedstock so that Wall Street and the City could securitize ever-expanding volumes of debt (while getting it graded AAA and foisting it off onto gullible money-market funds) as inadequate compensation for the dismantling of the welfare state; but people like Shiller say that the poverty and inequality could actually be mitigated by further financial engineering. The detailed examples provided in above turn out to be a little underwhelming, such as a “social impact bond” that pays a return if a particular social goal is met, or crowdfunding of public investment projects.

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees
by Patrick Dillon and Carl M. Cannon
Published 2 Mar 2010

To ease the inflationary pressure on new home buyers, Congress put a cap on the interest rates that thrifts could pay on deposits; the theory was that by paying out less for deposits, S&Ls would shrink interest on home loans as well. But this initiative did not anticipate how high inflation would climb. By 1979, Jimmy Carter’s third year as president, inflation was over 13 percent, yet federal regulations allowed the thrifts to pay only 5.5 percent on deposits. New unregulated financial institutions—money market funds—came into being that were allowed to pay higher interest rates and thus began attracting depositors at the expense of the thrifts. What’s more, owing to a new agility made possible by innovations in information technology, depositors could easily shop for the highest interest rates anywhere in the nation—and instantly park their money in those institutions.

Lords of Finance: The Bankers Who Broke the World
by Liaquat Ahamed
Published 22 Jan 2009

The present turmoil has also led to a mass run on the financial system—this time not by panicked individuals desperate to withdraw their money but by panicked bankers and investors pulling their money out of financial institutions of all stripes, not only commercial banks but investment banks, money market funds, hedge funds, and all those mysterious “off-balance-sheet special-purpose vehicles” that have sprung up over the past decade. Every financial institution that depends on wholesale funding from its peers has been threatened to a greater or lesser degree. In some respects the current crisis is even more virulent than the banking panics of 1931-33.

The Making of Global Capitalism
by Leo Panitch and Sam Gindin
Published 8 Oct 2012

The importance of this only became clear when, almost three years later, the Fed released documents that showed that, in the days before this access was secured, Morgan Stanley drew $48.4 billion from the Primary Dealer’s Credit Facility, while Goldman Sachs drew $12 billion; the PDCF had not been set up to sustain drawings on this scale.50 The Fed also extended a lifeline to the huge Reserve Primary money market fund (which had been forced to write off $785 million of commercial paper following Lehman’s bankruptcy). And this was soon followed by the Treasury’s blanket guarantee on the $3.4 trillion in mutual fund deposits, a ban on short-selling of financial stocks, and the seizure and fire-sale of Washington Mutual to prevent the largest bank failure in US history.

Den of Thieves
by James B. Stewart
Published 14 Oct 1991

During the decade ending in 1990, Lipper Analytical Services reported, money invested in the average junk-bond fund grew 145%. That was, in fact, worse than returns on the same amount of money invested in stocks (207%); investment-grade corporate bonds, so often ridiculed by Milken (202%); U.S. treasury bonds (177%); and equal to returns from low-risk money market funds. During the decade's last year, junk bonds returned a negative 11.2%. With benefit of hindsight, Milken's "genius" seemed his ability to make so many believe his gospel of high return at low risk. As David Scheiber, a junk-bond portfolio manager at Far West Financial Services and a big Milken customer, told The Wall Street Journal in 1991, "Some people believed whatever Mike Milken said."

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
by William D. Cohan
Published 15 Nov 2009

“The High Grade Fund's objective was to provide a modest, safe and steady source of returns to its investors,” Cioffi and Tannin claimed, adding investors “could expect annual returns of approximately 10 to 12 percent.” The fund was not designed to hit “home runs”; rather, the idea was that it would be “only slightly riskier than a money market fund.” And this idea was reinforced in the performance statements that were sent to investors every month. Month after month, Cioffi repeated for his investors his investment thesis. “It's a broken-record paragraph,” explained one of the investors in the funds, “that basically says, ‘The fund is 90 percent invested in AA and AAA structured finance assets and the goal is to generate spread through cash and carry transactions.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

The normal definitions start with currency; then the ‘Monetary Base’ or M0, which is currency plus the reserve accounts of private banks at the central bank; next is M1, which is currency plus check accounts but does not include reserve accounts; then M2, which includes M1 plus savings accounts, small (under $100,000) time deposits and individual money market deposit accounts, and finally M3 – which the US Federal Reserve no longer measures, but which is still tracked by Shadowstats – which includes M2 plus large time deposits and all money market funds. 4 It then grew at up to 2.2 percent per annum until October 1929 (the month of the stock market crash) and then turned sharply negative, falling at a rate of up to 6 percent per annum by October 1930. However, here it is quite likely that the Fed was being swamped by events, rather than being in control, as even Bernanke concedes was the case by 1931: ‘As in the case of the United States, then, the story of the world monetary contraction can be summarized as “self-inflicted wounds” for the period through early 1931, and “forces beyond our control” for the two years that followed’ (Bernanke 2000: 156). 5 ‘When prices are stable, one component of the cost [of holding money balances] is zero – namely, the annual cost – but the other component is not – namely, the cost of abstinence.

Ayn Rand and the World She Made
by Anne C. Heller
Published 27 Oct 2009

Eickhoff tried to disguise her dismay when Rand revealed that all her money was in a savings bank across the street from the apartment; the champion of capitalism had no time to research stocks and disapproved of government savings bonds, she told Eickhoff, who eventually persuaded her to invest her savings in money-market funds. When Eickhoff learned that Rand was drafting a new teleplay of Atlas Shrugged, she asked if she and her husband, a jazz club owner, could help finance the project. So did Ed Snider, a Rand fan and the founder of a sports conglomerate. Thus buoyed, Rand wrote steadily, and during evening Scrabble games with Pryor or one of Peikoff’s friends, she returned to the pastime of casting Atlas Shrugged.

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State
by Paul Tucker
Published 21 Apr 2018

As the financial and economic crisis broke and deepened, there was unscripted innovation on a grand scale. In addition to finding themselves acting in their institutions’ traditional role as lenders of last resort to the banking system, central banks provided liquidity to “shadow” banks, such as money market funds and finance companies. With the banking system on its knees, they stepped in as “market makers of last resort” to keep key capital markets open. And while details and timing varied across currency areas, after their short-term policy rates hit the “zero lower bound” in early 2009, they turned to providing macroeconomic stimulus by acting directly on the whole battery of risk factors incorporated into asset prices—term premia, liquidity premia, and credit-risk premia.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Securities and Exchange Commission charged the CEO and the CFO of Sunpoint with systematically stealing 25 million dollars from a money market account that the firm maintained for its clients. The SEC’s complaint alleged that from December 1997 through November 18, 1999, Sunpoint illegally transferred money market funds, belonging to its clients, to the firm’s clearing account. The firm then improperly transferred the funds to satisfy the firm’s net capital requirements. The SEC further alleged that the firm’s president and CEO also used the funds for their personal benefit. The diversion of client funds resulted in the firm having only 12 million dollars in its client money market account to cover 37 million dollars in money market obligations to its clients.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
by Ron Chernow
Published 1 Jan 1990

Morgan and Company—the parent company of Morgan Guaranty—now operated by new principles. It raised billions of dollars daily in the money markets and was emancipated from dependence on loan spreads and deposits. Though the bank still had no retail branches, Morgan people joked that they had a retail bank—Merrill Lynch, whose money market fund bought Morgan CDs. The House of Morgan had all but given up on wholesale lending as an anachronistic business for a bank whose blue-chip clients could raise money more cheaply in the marketplace, as they increasingly did in the early 1980s. In 1983, international bond offerings, for the first time, passed global bank lending in scope.

Rationality: From AI to Zombies
by Eliezer Yudkowsky
Published 11 Mar 2015

Let’s say there’s a common project—in fact, let’s say that it’s an altruistic common project, aimed at helping mugging victims in Canada, or something. If you join this group project, you’ll get more done than you could on your own, relative to your utility function. So, obviously, you should join. But wait! The anti-mugging project keeps their funds invested in a money market fund! That’s ridiculous; it won’t earn even as much interest as US Treasuries, let alone a dividend-paying index fund. Clearly, this project is run by morons, and you shouldn’t join until they change their malinvesting ways. Now you might realize—if you stopped to think about it—that all things considered, you would still do better by working with the common anti-mugging project, than striking out on your own to fight crime.

J.K. Lasser's Your Income Tax
by J K Lasser Institute
Published 30 Oct 2012

When you sell shares that you acquired after 2011, your cost basis for those shares will be reported to both you and the IRS; see below. Basis will be reported to the IRS when you sell shares acquired after 2011. New basis reporting rules apply for mutual fund shares acquired after 2011 in taxable accounts other than money market funds; retirement accounts are not affected. Shares acquired in a taxable account on or after January 1, 2012 are considered “covered shares.” When you sell covered shares, the fund will report your cost basis on Form 1099-B to both you and the IRS. For shares acquired before 2012, or “noncovered shares,” your mutual fund will not report cost basis to the IRS when you sell.