Punch line: Amid the Greek mini-panic this month, did you notice the really shocking news? To wit, U.S. regulators are worried about the “systemic risk” posed by the exposure of American money-market funds to European bank debt.
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According to the WSJ:
A 1983 Securities and Exchange Commission rule allows money funds to report a stable net-asset value of $1 per share, even if that’s not precisely true based on changes in the fund’s underlying assets.
The result is that investors have come to expect that money funds never “break the buck,” never decline in value.
But since 2008 U.S. money funds have been allowed to pile into European bank debt.
Half the assets in U.S. prime money market funds were invested in European banks as of the end of May.
Bottom line: If Greece tanks and takes down some Euro banks with it, the impact will be felt by US money market funds … which could possibly break a buck …
The Homa Files 
July 11, 2011 at 11:15 am |
This is serious business since “Breaking the buck” historically triggers a run on such money market funds. Failure to settle the Italian, Spanish and Portugese debt issues could also be disastrous. Of course, everything depends on the US raising its debt ceiling. The consequences of not doing so are unthinkable. Literally every security in the world trades off of the US Treasury.