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Monday, September 14, 2009

The Collapse of Reserve Primary: a Detailed Timeline of the Financial System's 'Ice-Nine'

News summary by MFWire's editors

Wednesday will mark the one-year anniversary of when the Reserve Primary Fund, then holding $62.5 billion, broke the buck. For those fundsters pondering how it all went down, Bloomberg's Christine Harper, Bob Ivry and Mark Pittman recently penned a detailed account of what happened to the fund (and its shareholders and advisor) when Lehman Brothers collapsed in September 2008, comparing the situation to the apocalyptic 'ice-nine' substance imagined by Kurt Vonnegut in Cat's Cradle.

For the full story on the the death of the Reserve and its Primary Fund, see MFWire's timeline.

Notable tidbits from the Bloomberg piece include:

  • only one percent of the Primary Fund's assets were in commercial paper in July 2007 -- by July 2008, 60 percent of its assets were in commercial paper, as Reserve tried to "pick out the carrots and the peas" from the frozen commercial paper market (the fund collapsed under the weight of $785 million in Lehman paper that became worthless);

  • 12 hours after Lehman declared bankruptcy, Primary Fund shareholders had already tried to cash out $18 billion;

  • Reserve chairman Bruce R. Bent I was in Rome with his wife celebrating their 50th wedding anniversary when Lehman collapsed;

  • Visa USA had $982 million in the Primary Fund, and Wal-Mart had $250 million;

  • the Primary Fund ranked third in yield among 227 money market funds in early September 2008. 

    Edited by: Neil Anderson, Managing Editor

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