Diya Gullapalli of the Wall Street Journal reported on March 7,2008 that troubles with Structured Investment Vehicles (SIVs) continue to plague taxable money-market funds. SIVs, which issue short-term debt such as commercial paper and medium-term notes to fund investments in long-term securities, are used to subsidize money market mutual funds. These SIV investments are under pressure as a result of the credit crunch.
Investment-management companies and other money-market fund brokers, such as Credit Suisse Group, Janus Capital Group Inc., Northern Trust Corp., and Wells Fargo & Co., recently disclosed that they are buying the assets of troubled SIVs or have pledged to do so if necessary even though such purchases will likely cut into earnings. Observers worry that problems with SIV’s could cause mutual funds to “break the buck” or fall to less than $1 per share, which will precipitate a massive decline in consumer confidence.
If the money market funds break the buck, the financial system will be shaken to its foundations. Just the threat that this might happen has spurred firms into taking action. Credit Suisse and Janus Capital have taken charges related to SIVs. Wells Fargo and Northern Trust have entered into capital support agreements to protect SIV-related securities.
According to money-fund researcher Crane Data, a total of 12 SIV-support moves have been announced publicly.
Instability in SIV-related investments proves that even money market funds ? supposedly almost as safe as Treasury securities ? can lose value.