Last week, I shared my personal decision to sell out of some money market mutual fund assets. Please read today’s excellent story by Bloomberg about the propping up of money market funds. In my opinion, there are few threats to the debt and equity markets that are more serious than a failure of these assets - a “breaking of the buck” as they call it. In fact, as it relates to the confidence of individual citizens in the banking and investment systems, I doubt anything poses a greater risk. If a lot of people did what I did a few weeks ago, there would be a massive “run on the bank” that would affect multiple asset classes in a way that a traditional deposit crisis would never do. Hopefully that will not happen and as we know, the fund managers would do everything possible to meet any shortfall.

Over and over the bulls chant about “all that money on the sidelines” and for the most part, they are talking about money market assets. So when you read Bloomberg’s piece and realize that the biggest of the big fund managers are stuck with billions in SIV’s and related ABCP - well, it appears that there isn’t as much money on the sidelines as you often hear about. If they would actually be marked-to-market, I wonder how many money market funds are now sitting there with $1.00 NAVs. As I wrote recently, be careful of the consequences of politicians and regulators pressuring for ratings downgrades on these products. My belief is that if the government actually enforced all the securities regulations and if all the fiduciary duties were met, there would be hell to pay. Instead, we suspend the rules, we look the other way…we just hope that things go back to the way they were.

When the Treasury’s M-LEC strategy was revealed, a few of us were concerned that money market fund managers like Federated and Fidelity were included in the discussions. Now, it’s a bit clearer why they were there and it is not comforting. The government and a few large institutions “propping up” money market funds is not a good sign - regardless of how it is spun.