haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
It is my understanding it is not mortgage paper that the MM are holding that is in trouble but AA paper for banks in their name that was being rolled every 90 days over. But since mortagages cannot be resold right now noone is willing to relend the money to the bank at AA rate. Therefore the only asset that is left to back the commercial paper the bank can no longer obtain is depreciated mortgage paper. As a for instance a German bank has losses of 4.5 billion on a default from subprime mortgage paper and may not be able to get it's commercial paper rolled over. Therefore the bank if forced cannot come up with the money to repay the commercial paper and will have to sell assets it has on hand to meet obligation which is the subprime paper. Since it is no longer at par the MM will be repaid at less than par unless the bank eats the difference.
If this were to spread to more common areas it would be an ugly scene.....
I understand the first part- this bank is having difficulty rolling paper. But their only way out of paying is bankruptcy- the bank is the credit behind the paper held by the MMF, not whatever asets the bank may hold. If the bank defaults, the MM is in trouble. But the bank can't just say- "Hey, I need a discount on that amount I owe you. At least they can't in the US.
Ha