<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Cash still fleeing money funds
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Despite a new government safety net, investors have continued to pull billions out of money market funds, making it tougher for companies to raise the cash needed for day to day business.
According to iMoneyNet, a research firm, almost US$80 billion (S$116 billion) was withdrawn from prime funds, which have the widest latitude to provide short-term credit to banks and businesses, since Sept 19.
That was the day when the US Treasury Department said it would insure the value of money market funds, hoping to stop the stampede of investors rushing out the door.
The run was triggered on Sept 16 when the Reserve Primary Fund, a US$64 billion institutional money market fund, and two smaller, related funds, revealed that they would no longer be able to meet even the face value of the investments. Instead, investors would get 97 cents on the dollar.
The Reserve Primary Fund blamed the move on the fact that it had bought Lehman commercial paper with a face value of US$785 million that was now worth little because of its bankruptcy.
Big institutional investors - like pension funds and college endowments - and individuals rushed to pull their money out of money market funds.
Data show that from Sept 12 to Sept 16, almost US$48 billion was moved from prime money funds. Even after counting additions to less risky government funds, the net amount withdrawn over that time was more than US$20 billion.
All told, money fund assets have shrunk by US$100 billion, to US$3.33 trillion, over the last three weeks, and prime funds have dwindled by more than US$370 billion, to US$1.6 trillion.
Continued shrinkage in prime money funds will increase the risks to the nation's economy because they are an important source of short-term credit for businesses. Indeed, continuing withdrawals will force them to sell assets they already own, a move that would worsen the business credit squeeze by pushing up rates for all short-term credit.
Some of the largest US mutual fund companies like Charles Schwab, Federated, Morgan Stanley and Putnam Investments have signed up for federal insurance coverage. More are likely to follow suit.
But the details of the Treasury insurance plan may actually discourage investors from entrusting additional cash to their money funds, say analysts. Under the terms of the plan, only the shares that investors owned on Sept 19, not shares bought later, are protected against a decline in value.
And, if the US Congress eventually passes an amended US$700 billion financial rescue plan, bank accounts may become more attractive to small investors, prompting additional withdrawals from money market funds. NEW YORK TIMES
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Despite a new government safety net, investors have continued to pull billions out of money market funds, making it tougher for companies to raise the cash needed for day to day business.
According to iMoneyNet, a research firm, almost US$80 billion (S$116 billion) was withdrawn from prime funds, which have the widest latitude to provide short-term credit to banks and businesses, since Sept 19.
That was the day when the US Treasury Department said it would insure the value of money market funds, hoping to stop the stampede of investors rushing out the door.
The run was triggered on Sept 16 when the Reserve Primary Fund, a US$64 billion institutional money market fund, and two smaller, related funds, revealed that they would no longer be able to meet even the face value of the investments. Instead, investors would get 97 cents on the dollar.
The Reserve Primary Fund blamed the move on the fact that it had bought Lehman commercial paper with a face value of US$785 million that was now worth little because of its bankruptcy.
Big institutional investors - like pension funds and college endowments - and individuals rushed to pull their money out of money market funds.
Data show that from Sept 12 to Sept 16, almost US$48 billion was moved from prime money funds. Even after counting additions to less risky government funds, the net amount withdrawn over that time was more than US$20 billion.
All told, money fund assets have shrunk by US$100 billion, to US$3.33 trillion, over the last three weeks, and prime funds have dwindled by more than US$370 billion, to US$1.6 trillion.
Continued shrinkage in prime money funds will increase the risks to the nation's economy because they are an important source of short-term credit for businesses. Indeed, continuing withdrawals will force them to sell assets they already own, a move that would worsen the business credit squeeze by pushing up rates for all short-term credit.
Some of the largest US mutual fund companies like Charles Schwab, Federated, Morgan Stanley and Putnam Investments have signed up for federal insurance coverage. More are likely to follow suit.
But the details of the Treasury insurance plan may actually discourage investors from entrusting additional cash to their money funds, say analysts. Under the terms of the plan, only the shares that investors owned on Sept 19, not shares bought later, are protected against a decline in value.
And, if the US Congress eventually passes an amended US$700 billion financial rescue plan, bank accounts may become more attractive to small investors, prompting additional withdrawals from money market funds. NEW YORK TIMES
