Tuesday, January 27, 2009

Vanguard fears money market losses, closes funds

Vanguard's is taking defensive action ...
Vanguard − Vanguard's Treasury money market funds are closed to new accounts as yields tumble

Vanguard has closed Vanguard Admiral Treasury Money Market Fund and Vanguard Treasury Money Market Fund to new accounts effective 4 p.m., Eastern time, on Monday, January 26, 2009. The decision was made to protect the interests of current fund shareholders in an environment in which yields on short-term Treasury securities have reached historic lows.

Current shareholders of the two funds who invest directly through Vanguard may continue to invest up to an additional $50,000 per day, per fund account. ..

and by email the legal notice (emphases mine)
... Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
Notwithstanding the preceding statements, the funds are participating in the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. The Program generally does not guarantee any new investments in the funds made after September 19, 2008, and is scheduled to expire on April 30, 2009..
Were you aware that the Guarantee program doesn't apply to investments made after 9/19/08 and that it may expire in a few months? I confess, I wasn't aware.

Vanguard should simply have explained that they had to close the fund because it was running at a loss; overhead and expenses mean Vanguard is having to shovel funds in to avoid breaking the buck. They want to cut their losses.

It also sounds like people were using it to transiently park a lot of money -- which increased expenses and losses.

Vanguard is recommending bank CDs as places to park cash. I'm getting the feeling they wouldn't mind some withdrawals before the April Guarantee program expiration.


fran quittel said...

PLEASE, please get someone WORTHY OF THE TASK in Congress to take a look at FDIC disclosure and depositor communications practices . . . WWW.FDICBUSINESSALERT.COM and www.indymacfdic.com.

fran said...

A november 2008 piece published on California Progress Report detailed an utter lack despositor disclosure transparency for in person and website depositor transactions. the information by Vanguard should have gone out to every money fund depositor - and why did it not? Because the system functions to the limit the risk of the institution and not the risk of the depositor - even now.