C SAFE Run

Local governments try to get the most out of their money, but they don't want to take risks with public money. So they keep their day-to-day spending money in checkable money market accounts. The accounts earn some interest, the districts can write checks right out of the funds and, most of all, they're safe. Or were save until the financial wizards of Wall St. started drowning in their own greed.

One of the country's largest (and oldest) money market fund just froze its assets to protect itself against an “It's a Wonderful Life” - type run on its assets.

Of course in this version of the movie Jimmy Stewart would be saying:

“I don't have your money, it's in Mr. Sullivan's $47 million severance package, in the Bear Stearns bailout and a hundred other schemes for protecting rich and powerful people from their own ineptitude and malfeasance.”

Local governments in Colorado keep their spending money in two privately-managed funds. One is called the Colorado Trust and the other is called the Colorado Surplus Asset Fund Trust (CSAFE).

About 360 local governments (including school districts, water districts, etc.) put their money in CSAFE. CSAFE, in turn, invests, some of the money in three money market funds. Two of them have frozen their assets and the third is probably thinking about it. It totals up to about $1 billion out of the fund's total of $2.5 billion assets.

The money itself is probably safe. “We don't have concerns about losses here,” said State Treasurer Cary Kennedy. The problem is liquidity. Credit markets are tight and the money market funds can't get their hands on enough cash to cover all of the immediate requests for withdrawals. That means CSAFE can't withdrawal as much money as it needs to meet the requests it's getting from the local districts.

CSAFE is managing the crisis by limiting local governments to withdrawing no more than 5% of their assets per day. It's handling critical needs for more money on a case-by-case basis.

Kennedy says that's OK for now, but if it goes on too long, some districts are going to have trouble paying their bills.