Friday, September 19, 2008

Apocalypse now? Putnam investors

I've been betting that Vanguard and Fidelity, for example, will whether the storm.

That's still my bet. The institutional investors mentioned below may have had to pull money to meet obligations, rather than to find a safer haven. Also, 12.3 billion is pretty small money-market fund.

Still, this won't improve Emily's mood ...
Talking Points Memo | Wow [1]

... Putnam Investments has closed a $12.3 billion money-market fund to limit losses to its investors the large mutual fund company said today. The highly unusual announcement is the latest sign that tremendous financial pressures are now threatening even some of the safest kinds of investments. The Prime Money Market Fund was open only to institutional investors. Putnam said in a statement that its board decided to close the fund last night after receiving a large number of redemption requests. The company said it could honor those requests only by selling assets at a loss reducing the value of the remaining shares. Putnam said it decided instead to liquidate the fund and spread any losses evenly among all the investors. 'We wanted to treat all shareholders equally ' said spokeswoman Laura McNamara. She said it was 'premature' to discuss how much of a loss if any shareholders will incur...
We need a game theorist to tell us if this lessons the incentive to cut and run (since you don't come out ahead), or increases the incentive to move fast. I'm hoping the former.

My theory has been that if this thing hits Vanguard and Fidelity then the "safe havens" are remote underground caverns well stocked with things like long-lived antibiotics, high quality seeds, and a good supply of materials for building log shelters.

I don't have time to set up the caverns, so we'll just have to wing it. I'm leaving my dollar-cost-average stock purchase programs in place.

We sure do live in interesting times. It's increasingly hard to remember what life was like in the Clinton era; it seems like a lost golden age.

All we need right now is for Al Qaeda to rise up from its grave. That would really top things off. Hmm. You don't suppose Cheney is playing for a third term? Nahhhhh.

[1] No link because Firefox NoScript warned me of a cross-scripting XSS attempt. Could be a false alarm, or they could have been hacked. I sent 'em an email.

Update: SEC bans short selling. Yep. Apocalypse now. Which reminds me of the kind of bleak sorts of things we realists like to dwell on. When the great depression hit we lived in a physical world. So things got dingy, dusty, and kind of worn, but they didn't vanish. Now we live in a virtual world. If we experienced GD II, where companies like Google go under, a good chunk of our world doesn't get dingy -- it vanishes. Presumably the government would need to nationalize those industries rather than let them vanish.

This meme shows up in modern science fiction btw. As I've mentioned before, people who don't read science fiction must find our world particularly surprising.

I'm still betting against GD II of course. Sure is interesting times though.

Update: $300 trillion is kind of a lot of money, isn't it? That's 0.3 quadrillion dollars. There, I wanted to be the first to start measuring things in quadrillions of dollars. Trillions are so 20th century. BTW, people who are both lucky and insightful, and who can play the game and win, are going to get insanely rich from this.

Update 11:30 CT: US Treasury has guaranteed money market funds. Note that the tag on this post includes the string "history".

Update 2:20pm CT: BBC most read posts in the middle of the biggest financial transformation since the 1930s...

It's not on the radar in Asia at all, but it did make #3 in North America.

I think I live in a parallel reality.


Anonymous said...

Using BBCs most read as a guide to anything will be a bit misleading, especially outside the UK - basically it usually can be tracked back to some big website linking the story's high in the list.

Anonymous said...

It seems strange to me as well that more people aren't directly concerned with what is happening in the financial sector. Folks are checking their retirement funds and their bank balances, but the mall parking lots are still full, as are the restaurants…I'm in my thirties so all I know of the Depression is what I read, but my grandfather is still alive–I wonder what he and his peers think of all this…

JGF said...

I think it might have gone a bit like that in the 20s. Stocks fell, recovered, life went on. Then it came down.

It's only in retrospect that we imagine it all fell apart all at once. And, of course, back then there was no FDIC or government covering mutual fund losses.

I think we'll get out of this crisis, but there's something broken in our system. There will be more.