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Finance allah shmoop what does breaking the buck mean Okay

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so there's this dog and call of the wild Remember

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him Alright Wait That's different and it wasn't broken He

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just became wild at the end Right Isn't that what

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happened All right well anyway breaking the buck in finance

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land is about the price of a money market fund

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as indexed to a dollar Well that is normally when

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you invested dollar while you get more than a dollar

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back Right Like a finance kindergarten concept One o one

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in money market funds Thie investment is design id lee

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Very low risk and low reward And it is purposely

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set up to be extremely liquid and safe That is

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that buck or dollar invested should almost always be sacred

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And the pricing of a money market fund composed mostly

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a very safe short term bonds Well it should always

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be above that buck If it weren't it would mean

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that you were getting less money than a dollar when

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you invested a dollar And that would be bad right

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And know that buck is the net asset value or

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in a v of essentially all money market funds just

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make the math easy here If nothing else if it

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breaks the buck and trades below a dollar well then

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it means that investors investing a dollar will in fact

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get like ninety nine cents back or ninety eight cents

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back Well how on earth can this happen Is it

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fraud Deceit chicken ary Well those could be issues but

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the breaking the buck phenomenon actually happened during the mortgage

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crisis of two thousand nine when interest rates were extremely

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low in fact so low that the throw or interest

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from those bonds wasn't enough to cover the operating costs

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of managing those money market funds There was a whole

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lot of risk it that time to remember We thought

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the financial system hopefully bust well is an extremely bad

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situation for the bank which sold those funds as extremely

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safe toe widows orphans and nervous nellies all around the

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world with the cost of running One of these funds

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isn't zero There are legal costs secretary cost brokerage costs

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or spreads rent insurance all that stuff which is must

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have in the world of managing a fund So when

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rates fell extremely low and or the managers of that

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fund took on all kinds of crazy weird derivatives risk

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trying to goose another ten basis points of performance out

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of their money market fund wealth They only found that

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the results whipsawed and cut well pretty much their arms

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and other appendages off It was potentially calamitous for the

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banks and the brokers involved So breaking the buck is

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a rare phenomenon in history It's happened only a few

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times and when it did it was oh so bad 00:02:49.99 --> [endTime] That whipsaw is wicked That's gotta hurt

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