Greek Crisis Hits Money Markets

According to a report from Bloomberg News, American investors may soon be at risk, as money market funds have recently been threatened by tremors of the financial crisis in Greece. For years, the funds in the United States have taken investors’ money and lent it out where they can get the best returns. European banks have been a target lately $1.6 trillion in prime money market assets is in the debt of European banks.

Now that Europe is struggling to contain its debt crisis, these safe investments could be a less safe, especially if Greece’s Parliament votes down a set of deeply unpopular austerity measures.
While any losses on money market funds could be minimal, especially compared with the turmoil that could ensue in stock and bond markets, the possible effect on this corner of the financial markets shows how the ripple effects could reach far and wide if Europe cannot resolve its debt crisis.

A primary fear is that if a European bank indebted to the funds is weakened in the crisis, then it might have a hard time repaying its loans.

Some investors have already withdrawn money from these funds. Their worry is that the chance of a Greek default increases if the country’s lawmakers fail to approve a set of tax increases, wage cuts and asset sales.

However, the moves are incomplete. The industry and regulators are still discussing possible changes, like plans for buffer funds to bail out investments that get into trouble.

In the last two weeks, investors have withdrawn $45.6 billion from prime money market funds. Some analysts remain unsure how these affects may begin to affect money markets and FOREX markets, not only in the US and Europe, but also Asian markets as well.

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Park Sae-jin swatchsjp@ajunews.com