Fallout: The Financial Crisis

The big question: Is my money safe?

Marketplace Staff Sep 18, 2008
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Fallout: The Financial Crisis

The big question: Is my money safe?

Marketplace Staff Sep 18, 2008
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TEXT OF STORY

Scott Jagow: The question everyone’s asking is: Who’s next? The two big investment banks left on Wall Street, Goldman Sachs and Morgan Stanley, had horrific days yesterday. There’s talk this morning that retail bank Wachovia might buy Morgan Stanley. And here’s another shoe that’s dropping. If you invest in money market funds, listen up. These funds are starting to break a buck. That means investors are getting less than a dollar for dollar return. And that is not supposed to happen. Several banks have said they will pour new money in, but it’s a pretty scary situation.

Our economics correspondent Chris Farrell joins us now. Chris, can you explain this to me?


Chris Farrell: This has to do with money market mutual funds. Reserve fund $62 billion; money market mutual funds — we’re not talking penny ante change. Broke a buck. I believe it’s like you get 97 cents back. And this is really nerve wracking because the latest figures I saw that individual investors have about $3.6 trillion in money market mutual funds. This is the money that people use to, if you lose your job — by the way, and people are losing their jobs these days — if you lose your job, this is part of your emergency fund. That’s what really grabbing the attention, I believe, of the regulators and it should because that’s the nightmare scenario.

Jagow: So Chris, people are, you know, feeling anxious already. They’re hearing something like this and their feeling more anxious. What are you telling people to make them feel better.

Farrell: Well, my advise is not changed and it’s always been consistent. If you have money in a money market mutual fund, you always want to be in a brand name, national, international institution. A huge behemoth.

Jagow: I hope you’re not referring to something like AIG. I mean, somebody that big.

Farrell: Oh yeah. Absolutely. No question. No question about it. Now I know AIG is disappearing. However, if you have your retirement savings with AIG, because they run a very large retirement savings part of their business, you’re still safe. If you have a life insurance policy with AIG, that’s safe. If this is money you absolutely cannot afford to lose, then, you know what, eliminate the risk and put it into U.S. treasuries, short-term U.S. treasuries. If you can’t take any risk at all, that’s what you should do, or if you’re under $100,000, you put it into the bank. You have the DICE is back stopping that. You don’t want to be reaching for yield with your safe money in the environment we’re in. I would argue in any environment, but especially in the environment we’re in now.

Jagow: All right, Chris. Thanks for your insight. Our economics correspondent, Chris Farrell, thank you.

Farrell: Thanks a lot.

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