Schwab picks eight firms to manage $3.3 bln fund
Tue Nov 27, 2007 6:40pm EST
Above article says: YES, they do!
"Stable value funds, like money market funds, are designed to provide safety of principal and high liquidity to investors. The Schwab fund has about 7 percent of its assets that are backed by subprime or slightly lower-risk collateral, but the exposure will not have a material impact on the fund, it said."
Wrong idiot. Exposure means they own or orignated subprime loans and have risk themselves. A private investment fund for certain qualified accounts that holds lower grade paper has the exposure, not Schwab itself. Even if the investments in the fund were to go belly up, Schwab itself wouldn't lose a penny. That is what is meant by having exposure.
Besides read what it said, The Schwab FUND has about 7 percent of its assets that are backed by subprime or slightly lower-risk collateral, but the exposure will NOT HAVE A MATERIAL IMPACT ON THE FUND, it said."
The bad debt from mortgages is going to extend beyond the sub-prime market into Alt-A and possibly prime A paper too. Consumers clearly over-extended themselves and our financial wizards let them do it with gleeful greed. Even Paulson says the mortgage defaults will be rising next year.
So who owns all this bad paper? Lots of people from all around the world. Northern Rock in England had a run on the bank over its USA subprime holdings. Swiss RE is having problems over it. Freddie & Fannie are having problems. GE short term bond fund (like money market fund) stiffed institutions for 96 cents on the dollar. Bern Stearns hedge fund went from AAA rated to bankrupt without a hint from the rating agencies. Merrill Lynch is writing down multi-billions as are many others.
Due to the way this bad paper has been repackaged and repackaged and repackaged, even the owners of those CDOs, SIVs, Derivatives, whatever name you want to call them, don't know how much risk they have in them. That's why Capitulating Ben says he wants to know "what that stuff is worth". The amount of Level 3 securities (unable to price/value) are rising and that's just the stuff insitutions have to admit is at risk.
Bottom line: anyone that says any financial institution and the products it offers has no risk is lying to you. The best "guarantee" you can get is FDIC-insured bank deposits and Treasuries. That's only because Ben can always print more money to cover the losses.
Schwab doesn't have any subprime exposure. One of their collective trust funds (not technically a mutual fund-only available to a select group-and which had boatloads of warning disclaimers on it) managed by the Charles Schwab Trust Company had less than 15% in one of of its portfolios invested in paper rated less than AA, some of which may or may not have been subprime.
Bottom line though- Schwab has no subprime exposure to itself.