October 07, 2008
SOMEBODY HAS TO GO FIRST
One of the reasons I like to read NRO's The Corner blog is that they often realize that it is their upscale readers that have most of the answers, not the politicians or other journalists.
Witness this e-mail from a Corner reader, printed by the Editor in cheif without comment.
Events in the next few days will show if he's right.
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Witness this e-mail from a Corner reader, printed by the Editor in cheif without comment.
Subject: Commercial Paper [Rich Lowry]
E-mail:
Mr. Lowry,
They are getting close to the source of the problem but the Fed has not taken the one step necessary to put life back into the market place.
Last summer, I was responsible for supervising a major set of money market funds. And, it was last summer that the market first froze up over ABCP (asset backed commercial paper), ie, mortgage backed CP.
At that time we came very close to breaking the buck and in the effort to preserve the $1 and the reputation of our Firm we issued orders to the dealers who oversaw our money market funds: basically nothing, zero, that had any risk, even slight, would be added to the portfolio and anything we held at that time that had even a scent of trouble was to be eased out of the portfolio. I cannot overstate fear of breaking the buck and the reputational damage that would ensue.
I have no doubt that my orders were replicated across the market and are nearly universal now amongst asset managers.
The fact that the Fed buying CP is really nice, but until those orders to "stay away" the problem remains and the fact that the Fed is a buyer is really nice but it doesn't solve the problem. We need money funds to become buyers, not the Fed.
This lack of liquidity will be with us until the Fed opens the window at par for money market funds. Once it does, the market will then reopen and only then will the market learn how to take risk again.
Nice, neat, stark, definitive, authoritative. How many money market managers have you talked to lately?E-mail:
Mr. Lowry,
They are getting close to the source of the problem but the Fed has not taken the one step necessary to put life back into the market place.
Last summer, I was responsible for supervising a major set of money market funds. And, it was last summer that the market first froze up over ABCP (asset backed commercial paper), ie, mortgage backed CP.
At that time we came very close to breaking the buck and in the effort to preserve the $1 and the reputation of our Firm we issued orders to the dealers who oversaw our money market funds: basically nothing, zero, that had any risk, even slight, would be added to the portfolio and anything we held at that time that had even a scent of trouble was to be eased out of the portfolio. I cannot overstate fear of breaking the buck and the reputational damage that would ensue.
I have no doubt that my orders were replicated across the market and are nearly universal now amongst asset managers.
The fact that the Fed buying CP is really nice, but until those orders to "stay away" the problem remains and the fact that the Fed is a buyer is really nice but it doesn't solve the problem. We need money funds to become buyers, not the Fed.
This lack of liquidity will be with us until the Fed opens the window at par for money market funds. Once it does, the market will then reopen and only then will the market learn how to take risk again.
Events in the next few days will show if he's right.
Posted by: JBD at
08:07 PM
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