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.<\/p>\n
Unlike bank accounts, money-market funds aren’t insured by the federal government. They hardly ever fail.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n