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CRISIS AND PANIC 

committed to maintaining a . net asset value, investors requested an additional
 billion later on Monday and Tuesday, September . 
Meanwhile, on Monday, the fund’s board had determined that the Lehman paper
was worth  cents on the dollar. That appraisal had quickly proved optimistic. After
the market closed Tuesday, Reserve Management publicly announced that the value
of its Lehman paper was zero, “effective :PM New York time today.” As a result,

the fund broke the buck. Four days later, the fund sought SEC permission to offi-
cially suspend redemptions.
Other funds suffering similar losses were propped up by their sponsors. On Mon-
day, Wachovia’s asset management unit, Evergreen Investments, announced that it
would support three Evergreen mutual funds that held about  million in
Lehman paper. On Wednesday, BNY Mellon announced support for various funds
that held Lehman paper, including the  billion Institutional Cash Reserves fund
and four of its trademark Dreyfus funds. BNY Mellon would take an after-tax charge
of  million because of this decision. Over the next two years,  money market

funds— based in the United States,  in Europe —would receive such assistance
to keep their funds from breaking the buck.
After the Primary Fund broke the buck, the run took an ominous turn: it even
slammed money market funds with no direct Lehman exposure. This lack of expo-
sure was generally known, since the SEC requires these funds to report details on
their investments at least quarterly. Investors pulled out simply because they feared
that their fellow investors would run first. “It was overwhelmingly clear that we were
staring into the abyss—that there wasn’t a bottom to this—as the outflows picked up
steam on Wednesday and Thursday,” Fed economist Patrick McCabe told the FCIC.
“The overwhelming sense was that this was a catastrophe that we were watching
unfold.” 
“We were really cognizant of the fact that there weren’t backstops in the system
that were resilient at that time,” the Fed’s Michael Palumbo said. “Liquidity crises, by
their nature, invoke rapid, emergent episodes—that’s what they are. By their nature,
they spread very quickly.” 
An early and significant casualty was Putnam Investments’  billion Prime
Money Market Fund, which was hit on Wednesday with a wave of redemption re-
quests. The fund, unable to liquidate assets quickly enough, halted redemptions. One
week later, it was sold to Federated Investors.
Within a week, investors in prime money market funds—funds that invested in
highly rated securities—withdrew  billion; within three weeks, they withdrew
another  billion. That money was mostly headed for other funds that bought only
Treasuries and agency securities; indeed, it was more money than those funds could
invest, and they had to turn people away (see figure .). As a result of the un-

precedented demand for Treasuries, the yield on four-week Treasuries fell close to
, levels not seen since World War II.
Money market mutual funds needing cash to honor redemptions sold their now
illiquid investments. Unfortunately, there was little market to speak of. “We heard