U.S. Treasury Money Market Funds

[antmary]

I have all my funds (other than banking) in Vanguard, and up to now have been a dyed-in-the-wool Boglehead. As you may know, the Vanguard U.S. Treasury Money Market fund closed quite awhile ago. Fidelity and Schwab are also closed as of late 2008. Gabelli does have a U.S. Treasury Money Market fund that is now open.

Can anyone recommend Gabelli? I know that Bob Brinker includes Gabelli funds in his model portfolios.

The reason I ask is this: my brother, who is a retired economist, called me a few days ago. He is very methodical, thorough, and low-key. He has never ever given me advice, or even inquired about how I am doing financially. He called every one of us siblings and told us that he thought that he needed to pass on the results of his research. He thinks that we are in for a depression in the near future, and that I should move my cash, stocks, and non-treasury bonds to U.S. Treasury funds; do not keep large amounts in a FDIC-insured bank. The vulnerability of the economy, according to him, may cause an extreme strain at the FDIC.

I usually take financial information with a grain of salt, but this time, I have been pondering his words for several days. Quite frankly, it is quite rattling to have anyone call with this sort of information.

Any thoughts?

 

[haha]

I have all my funds (other than banking) in Vanguard, and up to now have been a dyed-in-the-wool Boglehead. As you may know, the Vanguard U.S. Treasury Money Market fund closed quite awhile ago. Fidelity and Schwab are also closed as of late 2008. Gabelli does have a U.S. Treasury Money Market fund that is now open.

Can anyone recommend Gabelli? I know that Bob Brinker includes Gabelli funds in his model portfolios.

The reason I ask is this: my brother, who is a retired economist, called me a few days ago. He is very methodical, thorough, and low-key. He has never ever given me advice, or even inquired about how I am doing financially. He called every one of us siblings and told us that he thought that he needed to pass on the results of his research. He thinks that we are in for a depression in the near future, and that I should move my cash, stocks, and non-treasury bonds to U.S. Treasury funds; do not keep large amounts in a FDIC-insured bank. The vulnerability of the economy, according to him, may cause an extreme strain at the FDIC.

I usually take financial information with a grain of salt, but this time, I have been pondering his words for several days. Quite frankly, it is quite rattling to have anyone call with this sort of information.

Any thoughts?

It is easy, cheap, and free at most brokerages to invest directly in treasury bills and notes. Or, you can remove your money from the brokerage ane use a (free)Treasury Direct Account.

Ha

 

[LOL!]

You can buy up to $5 million of Treasury instruments at Monday and Tuesday auctions. You don't need to use a money market middleman. 4-, 13-, 26-week issues are available.

But being the contrarian that I am, I will take all my available cash and buy equities this next week.

 

[ziggy29]

I personally don't believe that the U.S. government would ever allow the FDIC to fail. I think that in the absence of FDIC backing, the 2008-09 depression (and yes, I consider it a depression, even if muted compared to THE Depression) would have been a LOT worse than it was. Giving the FDIC a blank check to keep depositors whole may cause some economic problems, but none nearly so big as "bank runs" on marginally solvent banks caused in the 1930s.

I think the entire country would have to go belly up into guns-and-ammo anarchy before the U.S. government would allow the FDIC to default on its promises. I think its role in maintaining confidence is that critical.

 

[FIREd]

I personally don't believe that the U.S. government would ever allow the FDIC to fail. I think that in the absence of FDIC backing, the 2008-09 depression (and yes, I consider it a depression, even if muted compared to THE Depression) would have been a LOT worse than it was. Giving the FDIC a blank check to keep depositors whole may cause some economic problems, but none nearly so big as "bank runs" on marginally solvent banks caused in the 1930s.

I think the entire country would have to go belly up into guns-and-ammo anarchy before the U.S. government would allow the FDIC to default on its promises. I think its role in maintaining confidence is that critical.

+1. If I doubted the solvency of the FDIC (and its full backing by the US government), then I would think twice before investing my money in US treasuries as well.

 

[Running_Man]

+1. If I doubted the solvency of the FDIC (and its full backing by the US government), then I would think twice before investing my money in US treasuries as well.

Has the US government issued a statement at some point it is backing the FDIC whether or not it goes bust or is this an assumption by the market?

 

[FIREd]

An FDIC-insured deposit is backed by more than just the insurance fund. It carries a full faith and credit pledge of the U.S. government. I view the full faith and credit pledge as the government stating, "We'll do what it takes to make you whole on your FDIC-insured investment."

Congress said it a bit more eloquently with the passage of the Competitive Equality Banking Act of 1987, known as CEBA, that was signed into law by President Reagan Aug. 10, 1987.

Title IX: Full Faith and Credit of Federally Insured Financial Depository Institutions -- Expresses the sense of the Congress to reaffirm that deposits, up to the statutorily prescribed amount, in federally-insured depository institutions are backed by the full faith and credit of the United States.

http://www.bankrate.com/finance/deposits/u-s-government-stands-behind-deposits.aspx

 

[Running_Man]

This excerpt from a FDIC advisory opinion written in November 1987 and presented on the FDIC Web site sounds a cautionary note about reading too much into the guarantee afforded by CEBA:
While any final conclusion on this matter rests with the Attorney General of the United States and ultimately with the courts, it is our opinion that Title IX of CEBA merely represents an expression of the intent of Congress to support the FDIC's deposit insurance fund should the need arise. Title IX does not change any existing underlying law. It does not amend the Federal Deposit Insurance Act, nor does it or any other provision of CEBA alter the method by which the FDIC is funded. The FDIC continues to receive no government appropriations, and its funding continues to consist entirely of its income obtained from insurance assessments and from the return on investments made in government securities. In addition, the FDIC's statutory authority to borrow up to $3 billion from the Treasury remains unchanged.

Ok it is what I thought there is an implied not explicit guarentee of the FDIC with no legal way to make it occur. It requires an act of Congress to actual re-fund the FDIC. Thank you for the post,

 

[LARS]

do not keep large amounts in a FDIC-insured bank. The vulnerability of the economy, according to him, may cause an extreme strain at the FDIC.

Sorry but this is utter nonsense. There is ZERO probability that the US government will allow an insured institution's deposits to not be honored.

To suggest monies are not safe at an insured institution (assuming below limits) is ridiculous. Full Stop.

There are many areas to be worried about, but this is not one of them.

 

[W2R]

Sorry but this is utter nonsense. There is ZERO probability that the US government will allow an insured institution's deposits to not be honored.

To suggest monies are not safe at an insured institution (assuming below limits) is ridiculous. Full Stop.

There are many areas to be worried about, but this is not one of them.

I would say it is extremely unlikely for anyone to lose money in an FDIC insured account, and money in such an account is perhaps safer than anywhere else other than under the mattress. Or maybe it is safer than under the mattress, too, depending on the crime rate in one's neighborhood.

Still, I think it's judicious to never say never, especially after what we saw in 2008-2009.

 

[Texas Proud]

+1. If I doubted the solvency of the FDIC (and its full backing by the US government), then I would think twice before investing my money in US treasuries as well.

Plus 2.... if the FDIC fails, so will your treasuries... they are the same...

 

[Texas Proud]

I would say it is extremely unlikely for anyone to lose money in an FDIC insured account, and money in such an account is perhaps safer than anywhere else other than under the mattress. Or maybe it is safer than under the mattress, too, depending on the crime rate in one's neighborhood.

Still, I think it's judicious to never say never, especially after what we saw in 2008-2009.

If the gvmt is willing to pay hundreds of billions of dollars to prop up institutions they do NOT have any obligation to prop up... I do not see them not backing the FDIC for a few billion...

There are a few hundred banks that might fail over the next two years... all combined are not that big a deal... (at least when we talk US spending)...

 

[LARS]

I would say it is extremely unlikely for anyone to lose money in an FDIC insured account, and money in such an account is perhaps safer than anywhere else other than under the mattress. Or maybe it is safer than under the mattress, too, depending on the crime rate in one's neighborhood.

Still, I think it's judicious to never say never, especially after what we saw in 2008-2009.

I will say it again. There is ZERO chance anyone will lose any deposit monies (assuming within limits) in an FDIC insured institution. The US Government will NEVER let it happen. End of story... move on to the next worry.

There's a greater chance a Martian will hack your bank accounts...

 

[haha]

Plus 2.... if the FDIC fails, so will your treasuries... they are the same...

This is not really true. Look above. It may well be rue that no one will lose money in an insured institution, but they are not the same.

 

[meierlde]

Plus 2.... if the FDIC fails, so will your treasuries... they are the same...

Actually to go a step further currency will also fail at the same time, as this implies a complete lack of confidence in the government. If one truly believes this gold and silver coins are the only way out. Also figure on riots civil commotion and martial law or the equivalent, so you better plan on moving deep into the wilderness, as roving gangs will be killing for food and the like.
Domestic borrowings are easily fixed if you own an electronic printing press.

 

[antmary]

Sorry but this is utter nonsense. There is ZERO probability that the US government will allow an insured institution's deposits to not be honored.

To suggest monies are not safe at an insured institution (assuming below limits) is ridiculous. Full Stop.

There are many areas to be worried about, but this is not one of them.

I would like to think that there is zero probability that my bank's deposits would not be honored. I stay away from the panic-ridden writings I hear about from time-to-time (e.g. books and newsletters); it is much better for my spirit to simply buy, hold, and re-balance my asset allocation as time goes along - and, to trust that my bank accounts are safe.

But, my brother doesn't write books or publish newsletters; he has no financial reason to "peddle fear." He spends his time analyzing the markets, etc. I do respect his 40+ years of research. What is odd to me is, simply, is the fact hat he did take the time and effort to call every one of us siblings seemingly out of the blue. Hopefully, he is simply misinformed.

 

[antmary]

I personally don't believe that the U.S. government would ever allow the FDIC to fail. I think that in the absence of FDIC backing, the 2008-09 depression (and yes, I consider it a depression, even if muted compared to THE Depression) would have been a LOT worse than it was. Giving the FDIC a blank check to keep depositors whole may cause some economic problems, but none nearly so big as "bank runs" on marginally solvent banks caused in the 1930s.

I think the entire country would have to go belly up into guns-and-ammo anarchy before the U.S. government would allow the FDIC to default on its promises. I think its role in maintaining confidence is that critical.

I hope that never happens. I can't shoot worth a darn.

 

[REWahoo]

I hope that never happens. I can't shoot worth a darn.

I can shoot just fine - unless someone is shooting back.

 

[antmary]

+1. If I doubted the solvency of the FDIC (and its full backing by the US government), then I would think twice before investing my money in US treasuries as well.

He said to put my money in treasuries, and re-assess in a couple of years. But, I really don't think the government would allow the FDIC to default due to security reasons. He also said that now is a good time to sell my gold, because it will tank along with stocks.

 

[antmary]

Plus 2.... if the FDIC fails, so will your treasuries... they are the same...

My brother seemed to think that Treasuries are a bit safer.

 

[Purron]

I'd be pretty shaken up too. It's one thing to hear varying opinions from the so called "experts" but to have a trusted brother tell you this is pretty scary. I would talk to him more and find out how he arrived at his conclusions. You didn't provide many details so I can't comment on his analysis.

I agree with the other comments that the chances of losing money in a FDIC insured bank is highly unlikely. If the FDIC does get in a jam, it will be after some large failures deplete the insurance fund. So even in a worst case scenario, this wouldn't happen overnight.

If you are worried about this possibility, you may want to take a look at the financial strength of the banks you deal with. Bank rate.com provides ratings here:

Bankrate.com Safe & Sound (tm): Bankrate free rating system for banks, thrifts, credit unions

 

[antmary]

I'd be pretty shaken up too. It's one thing to hear varying opinions from the so called "experts" but to have a trusted brother tell you this is pretty scary. I would talk to him more and find out how he arrived at his conclusions. You didn't provide many details so I can't comment on his analysis.

I agree with the other comments that the chances of losing money in a FDIC insured bank is highly unlikely. If the FDIC does get in a jam, it will be after some large failures deplete the insurance fund. So even in a worst case scenario, this wouldn't happen overnight.

If you are worried about this possibility, you may want to take a look at the financial strength of the banks you deal with. Bank rate.com provides ratings here:

Bankrate.com Safe & Sound (tm): Bankrate free rating system for banks, thrifts, credit unions

Thanks for the input, Purron. The bank where we hold our laddered CD's has never made a bad loan re: real estate. I think I will stay put for now.

He thinks that the next election cycle will reflect the mood of people not wanting to bail out any more entities, especially banks. He also talked about how the stimulus money is running down, and we don't have as many options to deal with the sort of crises we saw in 2008. We didn't talk for a long time, but I am going to have to get him to visit so I can pick his brain.

 

[Texas Proud]

This is not really true. Look above. It may well be rue that no one will lose money in an insured institution, but they are not the same.

OK... how about....

For all practical purposes... they are the same....


Sure... there is that 1 in a huge amount that it is not the same.... but as someone else pointed out.... if the 1 happens... you probably will not be any safer with treasuries than with FDIC funds... or cash, or anything else issued by USA...

So.. back to my original post... it is the same (for the results that will happen if FDIC does not pay money out)

 

[Texas Proud]

My brother seemed to think that Treasuries are a bit safer.

But that is just wrong thinking.... IF the FDIC does not make a payment on a failed bank... the treasuries that you own will more than likely be worthless... or maybe a couple of cents on the dollar... the practical result is you will be in the same boat either way...

PS... IF the FDIC does not pay... you more than likely would get a good amount of your deposits back... depositer are at the top... so think that you would get 50% to 90% of you money... it might take awhile to get it, but you will get it... but the financial ramifications of them not paying is so much worse...

 

[Texas Proud]

Thanks for the input, Purron. The bank where we hold our laddered CD's has never made a bad loan re: real estate. I think I will stay put for now.

He thinks that the next election cycle will reflect the mood of people not wanting to bail out any more entities, especially banks. He also talked about how the stimulus money is running down, and we don't have as many options to deal with the sort of crises we saw in 2008. We didn't talk for a long time, but I am going to have to get him to visit so I can pick his brain.

That is probably not true... I was never a leander, but worked for banks for many years... any bank that 'does not make a bad loan' is not making any loans...

All the other things might be true... but does not come into the discussion on the FDIC... I have not heard anybody complaining about them making DEPOSITERS whole... this is not a 'bank bailout'... the bank is closed.. the deposits and loans are sold off... it might look like there is a bailout... but there is not.