In the Hedge Fund world, managers can place limits on account redemptions, or in other words how much or how little a client can take out of the fund during a given period. They do this to protect their asset positions since most of the fund’s capital is often completely tied up in paper investments.
But for most people, hedge funds are outside their investment purview since they are often privately run entities that require large customer deposits that seek much higher risk for above average market returns.
Instead, a large number of average investors hold money in what are called Money Market Accounts, built to add a touch of risk while at the same time providing liquidity and a higher rare of return than a checking, savings, and certificate of deposit (CD) account. And as opposed to most hedge funds, money market accounts are regulated by the SEC, and protected up to a point from market manipulations.
However, a new rule that has come down from the SEC is causing even the standard money market accounts to be nearly on par with hedge funds as government regulators have passed a new redemption rule that could lock you out from getting to your money for up to 10 days should a financial crisis occur.
Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).
Moreover, when the Crisis DOES hit, it will be much, much harder to get your money out.
Consider the recent regulations implemented by SEC to stop withdrawals from happening should another crisis occur.
The regulation is called Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds. It sounds relatively innocuous until you get to the below quote:
Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate). To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests. A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier. Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period…
Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions. However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors. – Phoenix Capital Research via Zerohedge
Money market funds hold $2.9 trillion in the U.S. alone, and are made up primarily from institutions that broker mutual funds and other retirement accounts for millions of investors. And at stake for those who have money held with brokers, banks, and these institutions that utilize this market, a decline in liquidity would trigger the 10 day redemption freeze… in a similar way that the lack of liquidity and credit caused the 2008 financial crisis.
The SEC would not be implementing a rule like this unless they had foresight of something dire coming to the markets sometime in the near future, since as word of this new regulatory restriction grows, fewer and fewer people and brokers will be willing to trust their money to a program where liquidity is no longer the primary reason for holding cash in such accounts.
Dodd-Frank bank bail-ins, hints of government confiscation of retirement accounts (MyIRA), and now a restricting of redemptions in the money markets are a clear signal that the financial system is preparing for a new and tremendous collapse. And for all those who decry what we here at Rogue Money, and others in the alternative media have said about the risk of keeping your money in any paper asset accounts or banks, it is no longer a case of fear porn or conspiracy theories when regulators and legislators set in motion exactly what will happen to your money, anytime, and from any threat they deem fit to invoke.