The Fed today cut rates by 0.75% - or 75 basis points - in a bid to shore up the economy. No doubt, Bernanke is hoping the cut will drop rates on mortgages, eliminating some of the reset pain, as well as reinvigorate a dying consumer. The problem is, the rates cuts penalize those of us who have been responsible and who have assets in cash or cash equivalent securities.

As rates fall, the rates that banks pay out on savings, cds, and othe cash equivalent securities drops. With the stock market faltering, cash equivalents appear to be the only safe place to stash your money. Rates on these investments have been dropping since the first 50 basis point rate cut in September. After a high of 6% on some savings accounts and short term CDs, you'll be lucky to get over 5% shortly.

It's true that lower rates my help mortgage holders whose mortgages are about to reset. Rates on the 10 year bond have fallen. But once again, its responsible depositors who are subsidizing people who took out risky, and ill-considered mortgages.

We all hope that the "respected" business news sources get information correct and write factually correct articles. This does not seem to be the case with the recent money market problems.

The Financial Times ran a story entitled: Ailing fund bailouts hit $3bn and repackaged the story in another article entitled: More money funds are bailed out. The articles chronicle some of the problems normally safe money market funds have run into because of the credit crisis. But Crane Data, a money market and mutual fund information company had this to say about the reporting:

"Since the credit crisis began in August, we've repeatedly seen incorrect reporting on money market mutual funds. But a new FT.com article takes the misinformation to a new level. In "Ailing fund bail-outs hit € 3 billion," reporter Deborah Brewster claims, "Two other fund managers have suspended redemptions at money market funds." Speaking on "breaking the buck", she says "Many money funds have done so recently". These statements are both false. Like CNBC and WSJ, FT confuses enhanced cash vehicles with money funds. The article also mistakes total amounts purchased from funds with actual losses or "bailouts", which are a mere fraction of the total securities purchased."

In a previous article I wrote (Are your money markets safe?), I did seem to find two money market funds, not enhanced money markets that were bailed out by their parent bank so there is some stress in the money market world. But there is also quite a bit of confusion and misinformation being reported.

Head of JP Morgan Chase's investment unit, James Staley, says that money market funds are the biggest risk to the financial system now. With over $4 trillion parked in money markets, they are lightly regulated and hold no reserves should something go wrong.

He is quoted in a Bloomberg article as saying:

“What keeps me up at night most of anything we do at JPMorgan Asset Management is the money-market fund space,” Staley said at a discussion hosted today by Credit Suisse Group AG in Davos, Switzerland. “One of the things that has to come out and get a lot more attention and discussion is how do we take the systemic risk posed by money funds out of the system?”

Last September, the collapse of one of the largest money market funds, the Prime Reserve fund led to a run on money markets that was only stopped when the Fed stepped in with guarantees (what hasn't the Fed guaranteed).

Now, many are reexaming money market funds to determine just how much of a problem they pose. Money market funds are comprised of highly rated short term debt as well as cash to meet any redmpetions and ensure liquidity. They were considered a very safe investment vehicle.

But with a wave of bankruptcies predicted, even high quality, short term corporate debt may be risky. As we've learned, the ratings agencies have their own agendas and can't be fully trusted. So even if they rate a bond highly, it is not necessarily safe. The sudden collapse of Lehman Bros. led to the fall of the Prime Reserve Fund.

The Group of 30, an independent policy organization whose members include Larry Summers and Treasury Secretary Tim Geithner have proposed either forcing money market funds to either adopt banking industry controls (reserve funds, more regulation) or give up their goal of maintaining a $1 NAV. In essence, accepting regulation and reserves would make money markets into bank deposits, while not accepting would turn them into bond funds.

What does this mean for the average investor? Be cautious and investigate your money market holding. If you have free cash from your brokerage account invested in a money market fund you may want to take another look and feel comfortable with what the funds are invested. Money market fund yields continue to fall, making them a relatively poor investment compared to FDIC money market and savings rates. And unlike FDIC insured bank accounts, your money markets can lose value.