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1
Crisis Equals Opportunity in Some Bonds
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Thinking About All Our Risks
3
How Can I Tell If My Money Market Fund Is Safe?
4
What Happens To Your Insurance Policy When the Insurer Fails?
5
Subprime Lessons

Crisis Equals Opportunity in Some Bonds

The Subprime mortgage mess and its aftermath were partly the result of risks not being priced appropriately. Interest rates for risky mortgages and bonds should have been much higher given the level of risk involved. As financial markets still recover from the aftermath of risk being underestimated, there is a good chance that there are now areas where risk is being overestimated. This week’s issue of Barron’s has two interesting suggestions in this regard.

I’ve written elsewhere about the limited returns available for investors in traditional cash investments like money market funds and bank accounts.  For now, it looks like …

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Thinking About All Our Risks

Thinking About All of our RisksThe financial markets seem to be taking a breather after last week’s roller-coaster rides. We’re all digesting the latest news of short-selling restrictions and a $700 Billion stabilization plan for mortgage-related debt. But now is also a good time to step back and think more broadly.

Ron Lieber, who writes the New York Times “Your Money” column, was a busy man last week, writing columns and recording video clips to help readers understand what was going on.  In Saturday’s edition, he wrote a nice article on “Minimizing Your Own Exposure to Risks.” He noted that now is a …

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How Can I Tell If My Money Market Fund Is Safe?

How can you tell if your money market accounts are safe?This Monday, something very unusual happened: a money market fund began trading its shares at 97 cents, instead of a dollar. Reserve Primary Money Fund (RPFXX) was forced to write down three quarters of a billion dollars of Lehman Brothers debt as a consequence of the Lehman bankruptcy. Even though the debt may eventually be partially paid through the bankruptcy process, as a current obligation the debt has no value. Thus the fund’s share value had to drop, forcing the fund to “break the buck.” On Monday and Tuesday, investors in the fund pulled out $27 billion in response. FT

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What Happens To Your Insurance Policy When the Insurer Fails?

American International Group, one of the largest insurance companies in the world, has been struggling to stay afloat this week. Moody’s Investors Service and Standard & Poor’s lowered their ratings on AIG; these downgrades, in turn, trigger clauses in AIG’s contracts with its trading partners that could require the company to raise billions for collateral or penalty payments. It looks as though the federal government has decided to keep AIG from going under. Still, today insurance policyholders may have been wondering: what happens to my insurance policy if the insurer goes bankrupt?

The financial health of an insurer …

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Subprime Lessons

Subprime LessonsThe Federal Reserve Bank of Boston recently issued an interesting analysis of the nature of the subprime mortgage crisis in Massachusetts. Using data on mortgages, home equity loans, and deeds recorded between January 1987 and March 2008, the researchers were able to examine in detail the nature of the loans that ended in foreclosure. Some of their conclusions are surprising, while most fall in line with what one might have guessed.

The report. “What (We Think) We Know about the Subprime Crisis and What We Don’t,” is fifty-seven pages long, but its key findings are straightforward and interesting:

Adjustable rate …

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