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
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 …Read More
The 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 …Read More
The Treasury Department’s much-anticipated plan to prop up Fannie Mae and Freddie Mac has finally been (mostly) revealed. The move should help a bit to keep mortgage markets afloat, but if you’re not sure what all the fuss is about, this short primer should help.
What are Fannie and Freddie?
The financial world seems to have an insatiable appetite for cute nicknames. Nowhere is this more evident than in the names used to refer to the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). These organizations were among several public corporations described as …
Most financial planners advise their clients to have money set aside in an emergency fund. Occasionally my clients ask me why they need to keep money on hand for emergencies. If you’re like most Americans, once you’ve paid your credit card bills, mortgage, and your other bills, there’s not much left of your paycheck. If you’re someone who lives far below his or her means (by this, I mean that you have two or three thousand dollars a month or more left unspent from your income every month) you have the capacity to cover many typical unexpected expenses, like the