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US government to bail out money market funds

As the Asian markets look on in disbelief, since the global economy is in part touched by Wall Street, the US government tries to bail out investors by insuring the uninsurable.

Yes, you heard it. Treasury Secretary Hank Paulson is rushing out a plan to insure money market funds.

“Huh? Wait a second,” you say. “You can’t…. ”

That’s right. Why the government is bailing out mutual funds is beyond all logic. Here’s why. Money market funds are where you place your money in a bank if you allow the bank to use it in investment in market play. They usually provide these funds with a better percentage return than your comparable savings account but the big risk that you take is that it’s not FDIC insured. This is due to the fact that FDIC has certain rules and regulations on what the money can be used for in savings accounts and how much the bank has to hold onto whereas non-insured money can go “kaput”.

So why are they insuring it the next year? Because of all this Armageddon talk and how it’s the Great Depression again. A lot of negative buzz words if you ask me. I’m not an economics professor or expert by any means, but comparing now with 1929 is extremely coarse logic at best in my opinion. These days, financials are very much dependent on the global economy and the borrowing and lending on the global scale. If anything, globalism prevents these types of catastrophes from happening unless the entire global economy falls prey to itself. That’s actually a possibility also, but with as many variables in play as it is, it would be one of those statistical anomalies. Also in play is the general evolutionary timeline for any corporate environment. Corporations live and die by how they adapt to the current environment. My favorite example is DEC. Anyone remember it from the 1990s? They were one of the biggest technology firms around. Yet, not one mention of them these days due to non-adaptive management.

So why should we bail out the same investors? In every money market fund I’ve ever invested in, it’s in black and white that it’s not insured. You take the same risk just as you do with stocks, except you’re hoping that the bank portfolio managers know how to invest better than yourself. That’s the difference, just as it is with mutual funds. You never get a better percentage in investments for nothing. There’s always collateral. Always something. What are those famous words your daddy told you when you were little? Oh yes. “There’s no free lunch.”

So why is it that there’s a “free lunch” going around here? So why are these financial institutions and investment firms getting “get out of jail free” cards for making bad decisions is all but a political move to save people from themselves instead of actually forcing people to learn from their mistakes? Think of the parent that keeps interfering with the learning of a child because it’s not “safe”. Will the child ever learn to quit making errors? Of course not. Why would you when you have a safety net?

And all the while, those that understand just a little bit about how money works gawk at the fact that again they’ll be forced to pay for other people’s mistakes through taxation. It’s no wonder that other countries hesitate at loaning money back which drives us further into a hole. We dug ourselves in. It’s time that we quit digging ourselves deeper.

Photo Credit: (rutty)

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