Seattle Times- Money-market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.
Unlike bank accounts, money-market funds aren’t insured by the federal government. They hardly ever fail.
Unbeknownst to most investors, some of the largest money-market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations (CDOs) backed by subprime mortgage loans.
CDOs are packages of bonds and loans, and almost half of all CDOs sold in the U.S. in 2006 contained subprime debt, according to a March report by Moody’s Investors Service.
U.S. money-market funds run by Bank of America, Credit Suisse, Fidelity Investments and Morgan Stanley held more than $6 billion of CDOs with subprime debt in June, according to fund managers and filings with the U.S. Securities and Exchange Commission (SEC). Money-market funds with total assets of $300 billion have invested in subprime debt this year.
