September 17, 2008 8:03AM

$85 Billion? $1.1 Trillion? Try 3 Cents.

By Brian Sullivan

The massive numbers involved in the AIG debacle–$85 billion in loans, $1.1 trillion in assets–are staggering.  But it’s a tiny figure–$0.03–which may have had the biggest impact.

Three cents is the amount the value of a dollar has fallen in the money market fund Primary Fund.   Each dollar investors have in that fund are now worth just 97 cents.    The reason this matters is that this is only the second time in history that a money fund has seen the value of a dollar fall below 100 cents.  It’s called “breaking the buck.”   In this case, its more like breaking the bank.

Money market funds are considered to be the safest haven for your money next to the sock drawer.   Most consumers with money funds consider them cash equivalents, though safer because they are “in a fund” or in a bank, offering some protection.

The Primary Fund invested in debt securities issued by Lehman Brothers.  With the bank’s bankruptcy filing, the value of these securities were deemed worthless.   This pressured the money market fund, and caused the “breaking of the buck.”

The Fed was no doubt aware of this and its implications.   With stocks down and investors losing confidence in the markets as a whole, money funds have been considered the last, best alternative.   $ 3.5 trillion dollars exist in money funds.   Should these begin to get hit, the damage to even the most conservative saver would be terrible and shake the entire financial system.