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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ldo79 who wrote (86966)	9/27/2007 11:17:07 AM
From: stan_hughes	Respond to of 110194

I've raised this issue before, but the underlying KABOOM possibility in all this is that any MMF that is stuck over-invested in any now-illiquid ABCP and gets forced into either a capital loss or a long-term holding of that same debt as part of a workout is going to be mightily challenged to keep operating in the MMF space, where continuously rolling paper provides the only means to fund your redemptions as they arise each day -- i.e. you can't run an MMF by funding it with long term debt Most people think of, and therefore treat, their MMFs as if they were cash -- there is lots of turnover, and on a demand basis, too -- so whether or not the Canadian banks are obliged in a legal sense to provide backup funding for ABCP borrowers, those banks as a group may find themselves in the unpleasant vice of having to either buck up and reluctantly provide substitute lending facilities to the ABCP issuers, or let Mom & Pop MMF Investor get shafted and thereby possibly torpedo confidence in the whole system In other words, I can see why nobody wants to make eye contact, but that doesn't alter the fact that somebody has to hold the bag here I should also add that the above circumstances also apply to any non-Canadian MMFs in the same position (i.e those over-exposed to ABCP) .