Sunday, June 26, 2011
Bankster Incompetance Alert; Money Market Funds Exposed to Europe
James Grant in a recent Bloomberg interview discussed U.S. Money Market Fund (MMF) exposure to European sovereign and banking debt [about minute 4 into the video]. The effect of zero interest rates is to cause these MMF managers to scour the planet looking for yield to cover fund fees and still have enough left over to pay fund holders a whopping basis point or two. Investors' and savers' faith in this strange scheme is unbelievable, as measured by the $2.7 trillion sitting in retail and institutional MMFs! How soon people forget 2008 when MMFs broke the buck and went through a period where investors couldn't access funds until the Fed rescued them. Now you can be paid 1 or 2 basis points for something similar or worse.
This time around, MMFs have gone abroad, including Europe. I don't have access to Grant Observer, which requires a $1,000 subscription; but as the interview clip progresses, you can see a graphic showing MMF exposure to Europe. Several of the largest U.S. MMFs are shown.Fitch in its report suggests that MMF exposure to European banks is at roughly 50 percent of total MMF assets. The following is a list of European banks that utilize MMF borrowings. A number of these banks [list of twenty institutions most exposed to Greece] are exposed to Greek and Irish sovereign and bank "restructurings." You don't want to be anywhere near these.