Op-Ed: Bank of America shuts down Columbia Strategic Cash Portfolio

If you like whodunits, this is fun. Reuters, CNN, and the New York Times managed a hundred words or so. Bloomberg got the actual story. The fund was a $33 billion dollar fund, minimum $25 million, top end of the investment markets.

Then one of the investors pulled $20 billion, probably for the ambience. Bloomberg don’t seem to have had any difficulty joining the dots. The Columbia Strategic Cash Portfolio was a high yield cash fund. Says Bloomberg: “Unlike money-market funds, which are considered the safest investments besides bank accounts and government debt, cash funds aren't required to maintain a $1 net asset value. To generate higher yields, enhanced funds buy riskier assets that money funds aren't permitted to hold.” Note that last sentence- "riskier assets”. That was what happened. The fund was exposed to subprimes. The fund, going for high yield, picked “commercial paper or medium term notes” issued by up some of the structural investment vehicles operated by the banks, trading off the asset values of the subprimes. At the time, they were high yield. Now, they’re lepers. The banks gave themselves a bad case of exposure to the subprimes, and this is like a secondary process, like collateral damage. (Puns with a mission, here, folks.) It’s sort of like “Remember that IOU? I was guessing OK at the time, now I don’t have a clue what that’s worth…” The toxic effects of the subprimes are obviously taking some time to pin down. They’re like a contact poison in the financial world, and Bank of America has taken the traditional, but correct, action, ruling off the account, shutting down any further complications. Meaning whatever has happened has happened, and has a actual dollar value that’s not going to linger on in intensive care for years, possibly getting worse. Like the writedowns earlier this year, this is necessary damage control. Nobody has to like it, but it does have to be done. The Bloomberg story includes a comment that this could be the death of the cash funds. If so, they’ll just get replaced by some variant. It’s a bit of an overreaction, at this point, without some numbers. It also seems that investors have the option of either cash, at fairly close to dollar for dollar, or switching assets to other Columbia funds. That still might leave a bit of a singed feeling, based on volumes of cash, but it doesn’t sound like any sort of “slaughterhouse of the securities”. Far less impressive is the fact that none of the standard sources, the New York Times, CNN or Reuters had much actual story. Worse, CNN missed the point Bloomberg made about the large withdrawal of funds and its headline reads “BofA money market fund dives 70%.” It does, strangely, make a difference whether funds were withdrawn or assets devalued. They also got the total asset value wrong, but after all, it’s only news. The Bloomberg story is their third update. Fifth Estate? You’d have to wonder if some of them can count to five. Xomba, the news-addict's individually wrapped M, rather than M & M, read the Bloomberg article, and managed to miss the bit about the withdrawal of funds, too, while attaching ad popups to links. Perhaps flower arrangement and origami got too dangerous. Are there news sites for people with zero attention spans, now? I can see a strong case for arguing that three of the world’s biggest news sources, not having much to say, about something directly related to one of the biggest financial stories in history, might be seen as a bad thing. Having too much to say and getting it wrong in the process doesn't look too inspiring, either. If they’re sitting on their hands editorially at the request of the Bank of America, OK, but doesn’t that mean that the stories are still coming out, just doing it one sentence at a time? Isn't it rather pointless when the rest of the world is busily producing 115,000 hits on Google on the subject? It might be more in the public interest for people to know these things are getting shut down, and the leaks are getting shored up, rather than the destructive uncertainty that’s been hitting equity and credit markets. Bank of America’s own website and pressroom doesn’t have the story yet, it’s only been six hours or so, but this requires issue management, not issue evasion. Confidence isn’t going to be built by an ominous silence. The doubts are as dangerous as the problems. The CNN story, which seems to be going off half-cocked at what is either non existent or misinterpreted information, is a case in point. The markets are neurotic enough without gratuitous, illiterate, disinformation, and coy silences.