BlackRock, the nation's second largest manager of money market mutual funds with $242 billion, just published a paper analyzing the mortgage market contagion of 2007 and its impact on money markets. "Market Turbulence Exposes Risks of Liquidity Investing," available on BlackRock's website, discusses the genesis and impacts of the market's problems, and includes a "historical perspective" on the turmoil, mentioning 1994's Community Bankers U.S. Government Money Market Fund, the only money fund to ever "break the buck", and the 1970 Penn Central CP default.

BlackRock says, "Even some investments regarded as the most conservative were effected, with more than one investment manager stepping in to buy troubled securities out of their money market funds rather than allowing the impact to harm the fund." Among the "Lessons Learned": "Incremental yield is always accompanied by incremental risk"; "Ratings aren't everything"; "Liquidity matters"; "Non-Rule 2a-7 funds are not the same as Rule 2a-7 funds"; "Cash investing is not a low-risk activity", and, "Those who cannot remember the past are condemned to repeat it". The paper concludes, "The turmoil that began in the summer of 2007 and continues today serves as a reminder of the significant risks inherent even in this most conservative asset class. We believe it also demonstrates the importance of professional cash management."

Finally, in a section about BlackRock's cash management, it says the company avoided "the most troubled products", adding, "In fact, as many investors were holding paper with no liquidity, we were selectively buying high-quality ABCP programs at a discount."

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