We've been answering questions all week from people who want to know whether they'll be able to get their money back out of the bank.

Customers of the Reserve Primary fund are waking up to a (temporary) version of the bad-news outcome. They've been locked out of making major withdrawals for seven days.

Let's back up. The Reserve is a money market fund, and money market funds have historically been places where you could stash dough safely and still watch it rise. But the Reserve turned out to be holding something like $785 million in Lehman Brothers debt -- investments that the Reserve's board decided yesterday to label worthless. Their decision caused shares in the Reserve fund to dip to 97 cents. That's called "breaking the buck," and it's bad, bad news for a money market fund.

By blocking withdrawals, the Reserve is stopping the clock while it sorts things out. (And wouldn't we all like to do that.)

Marc Chandler, currency strategist for Brown Brothers Harriman, noted the Reserve situation in his morning bulletin, calling it a factor that "commands attention." He says people are flocking to the oldest and most secure forms of investment -- things like gold and U.S. Treasury bills. "People are saying we don't trust anyone," Chandler says.

Three-month Treasury bills are one of the hottest items going, by some measure that I won't pretend to understand. Here's a measure I can grok: "The Treasury will sell T-bills above and beyond the Treasuries regular program," Chandler writes, in response to "incredible demand." That's good news for the government, since the sale of T-bills helps to balance out the cost taking over Fannie Mae and Freddie Mac, et al.

categories: Currencies, News

11:53 - September 17, 2008

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