Bert05GPW

NEW YORK (MarketWatch) -- One of the original and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."

Primary Fund RFIXX managed by New York-based money market fund
inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero.

Nicotunes

So this only affects those with Lehman Bros shares, yes??

Bert05GPW

Nope. If you have money in their money market account, your cash is being held 7 days before you can get it. In essence, they took your cash and loaned it to Lehman; now, Lehman debt is worthless.

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The size and speed of the withdrawals was stunning. At 3 p.m. on Tuesday, Primary Fund's assets stood at $23 billion, a $40 billion hit from the $62.6 billion in the fund on Friday, a spokeswoman for The Reserve told MarketWatch late Tuesday.

Bert05GPW

It's a domino effect. Lehman was small potatos. Wait for AIG to hit.

Nicotunes

I thought the govt helped them???

Nicotunes

So if you do not have money with Primary, you are OK.......?

Bert05GPW

Correct on both points -- however, do you know if YOUR money market account / brokerage / etc. held Lehman debt?

The US Treasury will print money if necessary to handle AIG, but consider the implications. USD plunges, interest rates skyrocket. AIG is having to pay 11% (8 + Libor). How much will someone charge YOU if AIG gets 11%?

Bert05GPW

September 17, 2008 12:14 P.M.ET

Sell-off spreads beyond financials ... Nasdaq down nearly 4%
Bailout brings on bloodbath

Nicotunes

I guess I should check with Fidelity (401K) and ask them............

Nicotunes

So Bert, still think it's a good Bush idea to privatize Social Security and/or invest the SS account in the stock market??