Dear Mr. Berko:

Dear H.W.:

Money market funds can only buy the highest-quality paper, so you won’t find any of that subprime stuff in their portfolios, certainly not today. Many money market funds have in the past purchased 10-, 15- and 30-day commercial paper from structured investment vehicles (SIVs — derivatives designed by Wall Street to rape the economy but which backfired on them) that own subprime mortgages; and there’s more to come, much more in this $21 trillion housing market. A money market fund cannot purchase low-quality debt, but some of the high-quality debt it has bought can deteriorate.

Your broker’s MMFs are not insured; money market accounts at your local bank have Federal Deposit Insurance Corp. insurance and lower yields. In my opinion, the shameful, lower-yielding accounts at most banks ain’t worth a bucket of warm spit. I don’t know how to determine if your MMF has subprime SIVs, but the likelihood is minimal. Be mindful that a MMF turns its portfolio over every 30 days, and this subprime mess has been going on for more than four months. So if there was any subprime stuff in your MMF portfolio, it’s certainly long gone.

Meanwhile, the underlying securities in the MMF are rated, but the MMF portfolio is not rated by the credit agencies. So I’m willing to wager that you won’t lose a penny on your MMF. The consequences of one MMF failure would be the equivalent of a financial tsunami, and the ensuing terror would drown all the rats on Wall Street whose avarice created this mess. The commercial paper market (10-day to 60-day corporate securities) would collapse as millions of investors liquidated their MMFs, creating a financial panic that could throw our economy back to the Middle Ages and society with it. There would be anarchy on the streets, and even the super-rich would be reduced to middle-class paupers.

The Federal Reserve knows this, the banking system understands the implications, and even some members of Congress are able to comprehend the consequences. So although it’s very faintly possible that a MMF could go tulips in the rain, it’s a guarantee, solid as a gold eagle, that the Fed, Wall Street and the banking system will belly up to the bar and stanch the leak.

It’s just like the savings and loan crisis of the early 1990s, when stronger banks took over failing banks, and your deposits were guaranteed by a consortium that included the Treasury, the Fed, the banking system and Wall Street. So if there’s even a rumor of an MMF going down, it will be plugged faster than a frog hopping on a June bug.

As you know, MMFs are traded at a $1 a share. This is basically a fictional number because MMFs are really short-term bond funds with a target price of $1 a share. Some of the paper in the bond fund might be priced at $0.998, and other paper in the portfolio might trade at $1.002. Together they balance out at $1 a share. There have been about 25 instances in 2007 where a money manager has purchased securities to prevent his fund from possibly “breaking the buck,” which is the sacred number.

I can remember only one occasion when a fund’s net asset value fell below $1, which was in 1994. It was an institutional fund, and no individual investors lost a centime. However, when the MMF was liquidated, the institutional investors got 98 cents on the dollar.

So cool your heels, take a Xanax and as my dad would say, “I’d rather have a bottle in front of me than a frontal lobotomy.”

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service