Friday, September 14, 2018

Ten years ago: Reserve Money Market breaking the buck

Ten years ago, I barely understood money market funds, and then on September 16, 2008 (via Wikipedia):
The Reserve Primary Fund was a large money market mutual fund. 
On September 16, 2008, during the Global financial crisis of September–October, 2008, it lowered its share price below $1 ("breaking the buck") because of exposure to Lehman Brothers debt securities. This resulted in demands from investors to return their funds as the financial crisis mounted.  Normally, the net asset value of money market funds is kept at $1. 
Reserve Management had multiple other funds frozen because of this failure. It has liquidated a few funds, and post periodic updates about plans to liquidate other funds on its website.
I had been looking for work for quite some time during my postdoc - I think I knew that the economy was in trouble by that point. I have clear memories of discussing the Reserve Fund failure with my interviewer, who was kind enough to pick me up in his car.

Glad things are somewhat better now than back then. 

5 comments:

  1. Some are saying 2019 will be worse than 2008.

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  2. McNaughton and Harran received some punishment for their transgressions. Did any Lehman officers suffer any penalties or were they innocent victims of circumstances?

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    1. I'm sure they received some negative punishments, sort of like this.

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  3. The Dave Collum twitter feed, which I've been addicted to lately, is very apocalyptic. There is even more debt today than back then and interest rates are already low so there is not much the central bank can do to stimulate the economy. The shale industry has been fueled by debt, but can't really generate profits; it will mean lots of chemists back on the job market to compete against. In 2008 I decided to leave the US as this was all happening. In truth, the decision was made before the crisis started, but the DOOOOMMMM!!!! on TV made me want to explore the world if I was screwed anyways. Dave Collum's twitter is making me want to not come back for a while...

    Of course, I realize a financial crisis bigger than 2008 will affect me in any country, but after I've been gone for ten years and am very mobile, I'd rather take my chances outside. Plus the health care is better.

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    1. 2008 hit countries outside of the US very hard, particularly smaller countries. On my side of the world, recovery from an unemployment rate that nearly doubled in one year was extremely slow. I got the impression that the best place to be would actually be where it all started.

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