10 Years Ago: History of MMF Incidents
We wrote recently about the start of the Subprime Liquidity Crisis, which began 10 years ago this month. (See our August 11 News, "MMF Assets Jump, Prime Up Again; 10 Years Ago: Subprime Crisis Starts," and our August 8 Link of the Day, "10 Years Ago: Subprime Liquidity Crisis Began in Money Markets With ABCP Extensions.) August 2007 though was full of tumult. Ten years ago this week, we also wrote about the following stories: "Evergreen Removes Some ABCP Holdings to Protect Money Market Funds (8/20/07)," "Columbia Comfortable With Fractional Extendible CP and CDO Holdings (8/22)," and "CFTC Sentinel Management Pool Is NOT a Money Market Mutual Fund (8/14)." We commented, "In an "Evergreen Money Market Product Update" on their website, the company says, "Recent media and industry sources have published reports related to the asset-backed commercial paper (ABCP) market and the impact of these securities on various money market investment vehicles. In managing Evergreen's money market funds, we have reduced our exposure to ABCP and eliminated certain holdings." We also wrote on Sentinel, "CNBC reported Tuesday morning that Sentinel Management Group has asked the Commodities Futures Trading Commission (CFTC) to halt redemptions from its pooled accounts. The CNBC report erroneously identified the managed account as a money market mutual fund." Finally, ten years ago, we wrote "A History of Liquidity Incidents Impacting Money Market Mutual Funds (8/19/07)," which discussed past problems with money funds. Our piece said, "With recent hysteria and misinformation surrounding commercial paper and money funds, we wanted to review the historical record of minor problems involving these conservative investments. No individual investor has ever lost money in a money fund, and there has only been one case of an institutional fund "breaking-the-buck", or dropping below $1.00. Here is a synopsis of prior money fund bailouts: 2001 California Energy Crisis - PG&E defaults, about 10 funds buy out CP from funds (PG&E pays all principal and interest); 1998 General American Life - Funding agreements seized in bankruptcy, several funds impacted (investors paid in full); 1997 Mercury Finance - Strong Money funds bailed out over defaulted CP; 1994 Derivatives Bailouts, Orange County Bankruptcy - 20+ funds bailed out of troubled securities, since banned from money funds; 1994 Community Bankers US Govt Money Mkt Fund - first and only money fund to "break-the-buck", $100 million fund liquidated at $0.96 per dollar."
