Florida money fund gets subprime indigestion

A delicious theme of the subprime debacle is that otherwise smart people, who ARE PAID TO KNOW BETTER, got themselves and their investors involved in dodgy debt. Like Florida’s Local Government Investment Pool. Money fund managers who put investor capital in CDO debt, SIV commercial paper and similarly sketchy instruments deserve their own circle in mortgage hell. Investors like a good yield in a money market fund, sure, but at the end of the day, do we care so much about that extra 25 basis points that we’re willing to put our capital at risk? Money market funds are supposed to be ultra safe. That’s why people buy them. We’ve heard fund managers argue that Moody’s rated this stuff ‘AAA.’ It’s not their fault if the paper turned out to be unsound. Come on: take some responsibility guys. Investors don’t pay you to outsource investment decisions to Moody’s!

You want a high yield money fund that doesn’t carry added risk? I recommend Vanguard’s Prime Money Market Fund. They offer you a better yield for the right reason: the expense fee they charge is lower. You, the investor, get the incremental yield. I happen to be a very satisfied investor in Vanguard’s Prime MMF and am pleased, without any sort of compensation from them, to recommend it to others.

[An aside: it was also refreshing that a Vanguard phone representative could tell me that the Prime fund had no investments in risky asset-backed paper. The rep at Fidelity I spoke to had no idea what a mortgage backed security is.....]

Posted in Economy, Interest Rates, bubble, credit crunch, credit rating agencies |