Florida isn’t the only state being left as a bagholder for the SIV mess. After a run started on a Florida SIV (causing FL to freeze withdrawals), Montana is also discovering that above-market yields are no free lunch.
SAN FRANCISCO (MarketWatch) — Florida’s investment troubles have triggered withdrawals from other states’ funds as the subprime mortgage crisis continues to spread.
Florida halted withdrawals from a $15 billion local-government fund on Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks. See full story.
Other states are experiencing similar problems on a smaller scale.
The Montana Board of Investments, which manages the state’s money, has seen $247 million withdrawn by local governments in the past three days from a $2.5 billion money-market-like fund called the Short Term Investment Pool.
It won’t be any consolation to them, but the Treasury/Libor spread shrank a lot today, so the interbank seizure has calmed down a lot since yesterday’s worst-in-21-years 3-month Ted spread of 2.26 (it’s at 2.05 now). However, I think it would be foolish to assume that yesterday’s peak fears will not go unrealized.
I’m also surprised by the dollar’s rally after Kohn and Bernanke gave the markets their early Christmas present yesterday and the day before. The fed funds gamblers have now priced a 25bp cut as 100% likely, and a 50bp cut at 34 percent.