In August of 2007, after reading some disturbing financial news, I walked into the local office of a major national discount brokerage firm with which I deal and asked them if they had any literature explaining what their money market funds were invested in.  Like many people, then and now I have an account, wherein are invested my retirement savings, that includes a money market fund where any cash in the account is automatically invested.  The outfit I deal with offers several money market funds, none of which pay much in the way of interest these days, but in 2007 it was different and I was considering moving my cash from their general money fund, which I knew mainly invested in commercial paper (short term loans to large companies), to their Treasury Money Fund which invested mostly in the shortest term federal government debt paper which I considered much safer.
 
Anyway, the guy behind the counter at the local office asked why I wanted that sort of information and I explained to him that I was nervous about the risk of some commercial paper and the money funds that invested in it and I wanted to at least see what sort of businesses they were involved with (the concern was they might be going with less safe companies to get a higher rate of interest).  When I told him that, he laughed at me.  Literally.  Laughed and said all money markets funds were very safe, especially theirs.
 
Today comes the following news:
 

Nine of the 10 largest money-market fund companies at the time (fall 2008–mine was one of them), with two-thirds of all money-market-fund assets under management, turned to a financial first-aid program called the Asset-Backed Commercial Paper Money-Market Mutual Fund Liquidity Facility. The funds, facing an illiquidity squeeze, sold billions of dollars of commercial paper to major banks, which in turn used money borrowed from the Fed to make the purchases.
Those companies are Fidelity Investments, http://online.wsj.com/public/quotes/main.html?type=djn&symbol=JPM J.P. Morgan Chase & Co., http://online.wsj.com/public/quotes/main.html?type=djn&symbol=BLK BlackRock Inc.,http://online.wsj.com/public/quotes/main.html?type=djn&symbol=FII Federated Investors Inc., Dreyfus Corp., http://online.wsj.com/public/quotes/main.html?type=djn&symbol=SCHW Charles Schwab Corp., http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GS Goldman Sachs Group Inc., Columbia Management and http://online.wsj.com/public/quotes/main.html?type=djn&symbol=MS Morgan Stanley. Among the 10 largest money-fund firms, only Vanguard Group didn’t use the program . . . .  
Recent regulatory changes to money-market funds, including a requirement to keep more assets in short-term paper, have made funds safer. But they don’t address the fact that it is essentially impossible to maintain the $1-a-share benchmark while also guaranteeing immediate liquidity . . . .

Source:  http://online.wsj.com/article/SB10001424052748704594804575648872562084814.html?mod=ITP_moneyandinvesting_1 http://online.wsj.com/art…TP_moneyandinvesting_1
 
Through most of the crisis in late 2007 through 2009 I did keep my cash and my 90 year-old mother’s in a Treasury Money Fund.  I thought that guy who laughed at me was a fool then and I know it now.  
 
Be careful out there.

Well, in April of 2008, seeing the handwriting on the wall, I liquidated my stock holdings and put everything into FDIC insured savings accounts. By November, I was feeling very good about myself.

Bart

 
Yeah, but did you get back in when we were much lower?
 
I’m largely an income investor.  I live partly on dividends and interest and FDIC-insured accounts pay almost nothing.  I too could see the handwriting on the wall but decided I had no choice but to ride it out.  As things sit, I am back to where I was in terms of assets but I have continued collecting about 4-5% on my money.
 
I certainly lost money on a lot of what I held in early 2008, but there were really remarkable opportunities in things like bank and REIT preferred stocks near the bottom–they were paying 15% interest and most of them have since doubled in price.  That’s largely how I recouped the losses.
 
Still, I’m looking here at the risks in what most people consider one of the safest investments–money market funds.  Lots of people who wouldn’t touch stocks will use these without understanding the risks.

It’s not quite equivalent, because my income has been substantially reduced, so I have been living partially off of my savings. Still, I have as much now as I did then, so I’m doing OK.

Bart

 
IMHO it’s precisely equivalent.  I live partially off of my savings just like you do.  You got out, I didn’t.  We are both about back where we were in 2007.
 
But my point about getting back into the market was that I have read comments (online, on various fora) from a number of people who got out of the markets before they tumbled but I don’t know any of them who is substantially richer now as they would have been if they’d timed a move back in as well as out.  
 
 Compared to the way things were in the late 90s, I think much of the public is frightened of equity markets and may never come back.  And that might be a good thing for them because most of them weren’t willing or able to spend the time it takes to know what they were doing anyway.
 
On the other hand, my personal view is that there aren’t many asset classes that are bargains right now but the only 2 I see that look at all attractive are residential real estate (post debacle) and some stocks (especially those that will go up in an economic recovery which I believe we will have reasonably soon).  You get nothing on cash (or cash equivalents like CDs) right now.  The generational rally in bonds has ended (and a lot of people in bond funds are going to be crying soon).  For those of us living “partly on our savings”, I think we almost have to be in carefully selected dividend-paying stocks.  There’s nowhere else to go unless we want to become landlords.
 
And of course my original point was simply a warning to people who still assume money market funds are completely safe–like FDIC-insured accounts.