At least 400,000 people, and perhaps as many as a million, can't get access to their savings, a problem that has quietly persisted in spite of widely publicized federal efforts to restore confidence in money-fund investments.
Some of these customers -- who, like most Americans, assumed their money funds were as safe and accessible as bank accounts -- are getting desperate.
"Longer term, I just don't know how we'll deal with it," said John Oakes, a retired engineer in Austin, Tex., who can't tap $20,000 in a Reserve account to pay his mother's nursing home bill. "They say we may get some money this week, but we don't know if we'll get 100 percent, 90 percent or 30 percent."
Sandra and Lawton Dews, a retired couple in North Myrtle Beach, S.C., had more than $250,000 -- 35 percent of their retirement assets --invested in the Reserve US Government Fund.
"They even bragged that you could sleep at night if you invested in their funds," Mrs. Dews said. "In the past month and a half, we don't sleep at all."
Her insomnia began soon after Sept. 15, when the Reserve Fund was hit by a wave of redemptions, apparently because its largest fund had a stake in notes backed by the newly bankrupt Lehman Brothers.
The next day, its $62 billion Primary Fund and two small offshore funds "broke the buck," incurring losses that pushed their per-share price below a dollar.
Only one other money fund, a small bank fund, had ever broken the buck, and the announcement on Sept. 16 sent tremors from Wall Street to Washington. It ultimately played a role in persuading the Treasury to set up a temporary insurance program for money market funds.
And the Reserve Fund had seemed the least likely candidate for trouble, given its long and stable history -- its founder, the legendary Henry B. R. Brown, had invented money market funds.
Initially, the company simply announced that it would delay redemptions from the Primary Fund for up to seven days, as allowed by law. Customers were somewhat reassured, but anyone trying to get additional information was met with busy phone lines and unanswered e-mail.
The news occasionally posted on the fund's Web site got steadily worse. On Sept. 18, investors in a host of other Reserve money funds learned that their money would be tied up for as long as a week; that delay later became open-ended. On Sept. 19, the fund delayed redemptions from both the Primary Fund and the US Government Fund indefinitely.
Since then, investors have been on a roller coaster of broken promises, with the company repeatedly blaming its record-keeping systems for delays.
That sounds kind of suspicious; one can see the record system being overloaded by the volume of redemptins, but for over a month? Can any of my readers comment?
"Don't trust the government" should not be interpreted as "but you can trust corporations."
Only to say (i) I had money in The Reserve Fund, and it is basically true that I have lost all access to the money for a month, (ii) fortunately, I had money in other places, which is why you should never put all your money with one financial institution, though of course they try to sell you on that, (iii) the fact that I had to sell stocks to make up for the money that I lost access to has been a bit of blessing, actually, (iv) the Reserve was always a bit of a shoestring operation, to keep costs low, so it doesn't surprise me that a complete liquidation is hard for them to accomplish promptly and smoothly, and (v) as best I understand, a big problem is that most of their accounting and reporting systems were not set up to allow share prices of other than $1.00.
y81,
As an IT consultant everything you said makes perfect sense. I can see the meeting as the new guy asks - but what happens if we break the buck - and everyone gives him a dirty look and he never raises that objection again.
Oh well, they should have listened to the new guy.
I agree with jmo. Most likely those who laid out the record keeping system never took into account a massive volume of redemptions like what happened. Most likely we're all waiting while Reserve Funds completes a crash re-engineering of its order processing system.
Reserve is different than many other MM funds in that it had a run, and no parent to bail it out. The Fed/Treasury programs to save the MM's are designed to prevent runs.
The difference might seem subtle but it's huge. The Fed it taking in crappy MM paper and paying cash for it. The MM's then buy Treasury paper, the same kind of paper that was sold to raise the money to give to the Fed to give to the MM's, so their books look semi good so there is no run.
Got that? It's a Ponzi scheme. A con.
Well back to Reserve. Reserve even if they get top dollar for their crappy paper they won't have enough to make the investors whole and apparently the Fed isn't even doing the repos with them. Presumeably because it's a lost cause. The Fed is trying to decide which is worse. The bad publicity about these people being locked out or the publicity that would ensue if it became known that a bailed out MM still broke the buck. The latter is really really bad because it could cause more runs.
I should add that if you have money in a MM fund it in the interest of everyone to keep it there. You wouldn't want a show a lack of confidence would you?
No, it's far far better if we keep the Ponzi scheme going. Isn't that what freedom and free markets and wealth building are all about?
rapier,
You forget that when the US, and by extension the world, was on the brink of financial armegeddon, the world dumped its money into US Government debt, driving interest rates negative.
Also, since US government debt levels are 1/2 to 1/8 that of other industrial nations, I fail to see how using our ample credit reserves to buy up some corporate paper is a "Ponzi scheme".
If Japan hasn't collapsed with a government debt burden of 190% of GDP, I fail to see how we don't have a little wiggle room with a debt level at 40% of GDP.
Firstly I am making a philosophical point. The dishonest accounting which was the hallmark of the bubbles is now being used to 'fix' things. Exactly how long can a financial system endure without honest accounting? If it does endure at what price?
Already the fiscal 09 deficit, 30 days along, is $422 billion. An entire generation of politicians defended not giving things to citizens based upon the horror of some fraction of that number, in current dollar terms. A number made in 30 days, I'm forced to repeat. And that was before Reagan.
It's ever so handy to opine that the GDP/Dept ratio isn't really so bad, now. Now that the several trilion dollar price tag will go entirely into non productive investment. In hopes that someday our banks will lend it to us, again.
I'll comment; because they're criminals and are working hard to hide their fraud and the SEC is doing nothing to investigate and prosecute them.
You are correct. It is suspicious. Very suspicious.
A bunch of 22-year old accounting majors with 4.0 GPA's from Liberty University are hard at work on the problem as we speak.
abolish the federal reserve and put the people behind this illegal activity in guantanamo .The federal reserve is a parasitic entity sucking the life out of people in this country charging interest for money thy dont even have
bamboni, tells all; 8:37
Who wants to be last one in the tellers line at Bamboozle Bank ?
Agreed with bamboni. Put these dirty kike mf*s that own the federal reserve- that is not federal in guantanamo bay, their families and any mf that looks like them- that have been usurping the Gentile (goy) population since 1913,.
See Ron Paul publically names neocons on youtube, money masters, Rothchild and banking.
Shekelgrabber, shame on you.
Criminality comes in all ethnic flavors.
There is *zero* reason to heap opprobrium on any one ethnic group.
Your poorly disguised greed and envy should not be part of this forum.
Reserve is looking to close down and reopen under a new name.
don't trust them!!
they had a chance to sell all the paper before they broke the buck. But decided to take a chance at their clients expense!!