Liquidity concerns: How safe is your money?

Yesterday the New Zealand arm of the Dutch giant, ING, suspended withdrawals from 2 of its funds affecting some 8000 investors. The 2 funds were invested mainly in credit securities and were down over 20%-25% over the last year.

So nothing new there except the suspension of withdrawals from the fund. Now we’ve seen this already in the banking sector when Northern Rock closed its doors to depositors. Last month Scottish Equitable told 129,000 investors that they could not access funds for at least a year. Its familiar and sad story.

What’s the world coming to when you savings or cash is not safe.  Well maybe we’ve got too comfortable with our present financial arrangements. Have you ever met a poor investment banker? Well probably not. The last 15 years has seen a phenomenal rise in the idea of money as an asset class itself. The ability of banks to create money via debt and ply the financial system with leverage has led to a new type of investing. The ability to create money out of nothing is how markets have grown to the size they are now. It’s not a zero sum game as long as the supply of money and leverage keeps increasing. No one embodies this more than Stephen Schwarzman of Blackstone. Just as George Soros and Michael Milken of previous years, he will be known as the man who made the most of the situation at the time.

What we are witnessing now is the de-leverage when all that new money goes poof! and people look around to see where the security or asset is and find it’s more of the same. Round and round it goes until it simply disappears (money is destroyed) or an asset is finally found to be sold, usually at an extremely low price.

So its pays to be sensible here. Check your savings and investments. Make sure you understand what type of access you have to them and under what terms.