Comments on: Could a Greek Default Destroy American Money Market Funds? https://www.isegoria.net/2011/06/could-a-greek-default-destroy-american-money-market-funds/ From the ancient Greek for equality in freedom of speech; an eclectic mix of thoughts, large and small Thu, 30 Apr 2026 20:25:16 +0000 hourly 1 http://wordpress.org/?v=3.6.1 By: Isegoria https://www.isegoria.net/2011/06/could-a-greek-default-destroy-american-money-market-funds/comment-page-1/#comment-254373 Isegoria Tue, 14 Jun 2011 19:59:44 +0000 http://www.isegoria.net/?p=25170#comment-254373 Certainly the realization that everyone’s short-term paper is worth much less than they all thought is going to lead to liquidity problems, and, as you point out, this can snowball, but it’s fundamentally different from a run on a fractional-reserve bank, where the slightest drop in the bank’s portfolio’s value — the equivalent of it “breaking the buck” — should mean that a few quick customers lead the run and get 100 percent of their money out, while the rest come away with nothing.

I believe the requirement for money market funds to redeem shares at their net asset value contributes to the problem you describe, by the way. If they were legally more like closed-end funds, ETFs, or ordinary corporations, then shares would trade on an exchange, and the funds would not need to unwind their own positions.

]]> By: Johnny Abacus https://www.isegoria.net/2011/06/could-a-greek-default-destroy-american-money-market-funds/comment-page-1/#comment-254126 Johnny Abacus Tue, 14 Jun 2011 17:17:36 +0000 http://www.isegoria.net/?p=25170#comment-254126 Sort of. Even with short term paper (as seen in the last crash), there can be liquidity problems.

Specifically, enough redemptions can force sufficient sales of the underlying (already troubled) assets to saturate the market over the short term — causing the price of those assets to drop and triggering even more redemptions.

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