Panicky Ruminations

One week ago the annual report from one of my money market funds arrived. For the first time in a long time I didn’t send it directly to the recycling pile. I scanned its list of investments. None of the recent companies in the headlines, Bear, Lehman, WaMu, IndyMac, AIG, Merrill, was on the list.

Just as seemingly healthy 40-year-old men have been known to keel over in the office, rock-solid financial names have been collapsing. Could a big bank—despite the ministrations of Doctor Fed—be next? Even if I could pull out of my (uninsured) money market funds, where would I put the money, under the mattress?

I reprised the Y2K conversation with my partner. We wondered whether we should set aside some cash—real folding money—to buy food, gas, and other essentials. Look at how the Hurricane Ike survivors are stuck without power, water, and ATM access.

My panicky ruminations were dispelled for the moment by Friday’s announcement:

The U.S. Treasury Department announced a massive program Friday to shore up the nation's money-market mutual-fund sector, responding to concerns that the global financial crisis is starting to affect those historically safe assets.
[. . .]
Under the Treasury program, the government will insure the holdings of any eligible publicly offered money-market fund. The funds must pay a fee to participate in the program.

To me insuring the safety of money-market funds was the most important of all the stabilizing actions that the government took. The public can handle a declining stock market. When millions of people can’t get at their cash, that’s when widespread panic ensues.

The Federal Reserve and the Treasury Department contained the fire last week. But it's still burning. © 2008 Stephen Yuen