T, Enron is big, but not big enough for its paper to cause a crisis. Despite all the bad stuff I've said about money funds over the centuries, they do diversify their risk widely. Even two or three cos. defaulting would not impact principal. It would impact payout. For the definition of the term, payout, check what money funds paid before Alan da Printer went on his rampage. We may soon have to change that to payin. <g> And it would definitely impact fees and expenses, which would be waived if the fit hit the shan. The money managers usually run to brace up the money funds, because, if they go, the entire magilla is gone.
We have had a few defaults in the past and they always hit the funds that allow Prime II paper, as opposed to the ones with Prime I only. So, we have a situation where many folks have stretched for yield and they could get less yield because of the stretch.
So, right now, Enron doesn't scare me. In the long haul, the possibility of a commercial paper blowup remains a possibility. I remember back in the 1970s when American Express was having trouble rolling its paper due to the oil in the silo scam. The system can easily handle An Enron or An American Express. What hasn't been tested is handling several big cos. in different industries. |
