Treasury to the rescue!

Well a couple of good days in the markets, both domestic and foreign.  Oil inches slightly higher, just under $100 a barrel.  Gold, silver and other precious metals are on the rise as people chase something tangible.  This based on some potential losses in money market mutual funds.  Long thought to be safe havens, most individual investors and many institutions own money market mutual funds.  These funds have a NAV (net asset value) of $1.00 per share, normally, and this NAV doesn't go up or down, as the majority of the interest paid to the fund from the securities held is distributed to the shareholders as a dividend.

Just like any other mutual fund however, you are at the mercy of the securities held by the fund.  If one holds government paper (t-bills, t-notes, etc.) there is not really an issue, but if one holds short-term commercial paper in other companies (particularly financials; and financials with weak balance sheets) and those companies have financial difficulties or file bankruptcy, then the mutual fund holding those securities will suffer a loss.  Today the U.S. Treasury Department said it will support money market mutual funds whose NAV has fallen below the $1.00 mark.  This announced by Treasury Secretary Henry Paulson (check you recently printed cash, he is the guy whose signature is on the bottom right front side of your currency!  He also announced an ASSET RELIEF PLAN, by taking bad mortgage loans off the books and getting some funds in the hands of those banks that will still be around after all this mess shakes out. "I am convinced that this bold approach will cost American families far less than the alternative--a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," said Paulson on Friday (September 19, 2008). (from Rueters)