December 2, 2008
Several leading economists state that this simple change could clear up 70% of the problem. If mutual funds, particularly municipal bond funds, where allowed to evaluate their portfolio based on it economic or earning value, investor’s 401K and other monthly portfolio’s balances would increase by 40%. “Mark-to-market” makes no sense when there is NO MARKET. This is particularly true with municipal bonds which are traded very thinly even during good market conditions. Today there is only dumping by hedge funds and failing investment bankers, which vastly depresses the “market” price. However, the par value of the bonds are still sound. Following is just one example: Oppenheimer Rochester National Municipals Fund is one of the leading municipal bond funds. Its portfolio is made up of only state and local municipal bonds that have a default rate of .03%. In little over one year, this fund has lost 49% of its market value. However, the bonds that make up its portfolio have not lost any of their value. They are still paying the stated interest and if called or when reaching maturity would be redeemed at the par value of the bonds. A $10,000 state bond is still worth $10,000, not $5,100!
My 91 year old Mother, who has most of her investments in municipal bond funds is current down over $100,000 and my daughter, who was saving for the down payment of her first home, is down $90,000 from an investment in the leading municipal bond fund. Eventually, the true value of the underlying bonds and normal market conditions will result in recovering the market price of the funds. However this may come too late for my 91 year old Mother and daughter, as well as thousands of other senior citizens and 401K investors.
Please suspend the “mark-to-market” accounting rules for mutual funds.