IMPEACH BUSH

The cascading losses on Wall Street increasingly threaten the safety of investments in money-market mutual funds, which have long enjoyed a reputation for being almost as safe as bank accounts.

Money-market funds aim to invest in low-risk debt issued by the government and healthy corporations, allowing the funds to pay investors a marginally higher interest rate than an average savings account.

But as financial companies move from apparently healthy to definitely dead at ever-increasing speed, some money-market funds have been caught holding investments that are suddenly worthless.

The bankruptcy filing of investment bank Lehman Brothers, announced Monday, was the latest blow, forcing some fund managers to choose among covering losses with their own money, preserving the illusion of safety, or imposing the losses on their investors.

On Tuesday, for the second time in the 37 years since money-market funds were introduced, a fund manager chose to impose a 3 percent loss on its investors, a decision known in the industry as "breaking the buck." Roughly 20 fund managers this year have chosen to cover losses, the greatest concentration of interventions since the early 1990s.

"Consumers should certainly be paying attention," said Peter Crane, president of Crane Data, which tracks the industry.

The industry has tried to soothe investors. Most of the large funds' managers have issued statements affirming their willingness to cover losses. Several said they had done so this week. Wachovia covered $494 million in losses at three of its Evergreen funds. Northwestern Mutual Life Insurance covered $478 million in losses at two of its Russell funds.

Fidelity Investments, among the largest managers of money-market funds, issued a statement that read in part, "We can state unequivocally that Fidelity's money-market funds and accounts continue to provide security and safety for our customers' cash investments."

But investors appear to be fleeing the funds, particularly those that invest in corporate securities. Market analysts said the price of Treasury notes rose sharply yesterday, in part because of increased demand from investors seeking safe investments.

Money-market funds are carefully designed to mimic bank accounts. Customers can write checks. And the share price is held constant at $1, allowing gains to be reported as "interest" in the form of new shares. Money-market funds are distinct from money-market deposit accounts, which are offered by banks and can be insured by the government.

The fund that broke the buck, the Reserve Primary Fund, is owned by the company that invented the money-market fund. Reserve Management opened its first fund to investors in 1971. The company has since been surpassed by larger rivals, but its Primary Fund held investments of about $62 billion as of Friday.

The safest investments in America are short-term notes from the Treasury or government-insured bank accounts. The basic idea of a money-market fund was to offer investors the returns on Treasury notes with the convenience of a bank account. But almost from the beginning, funds eager to woo investors tried to goose their returns by investing in slightly riskier debt, such as corporate securities.

Over the past 12 months, the Primary Fund posted a return of 4.04 percent, the highest of any of the 2,151 money-market funds tracked by Morningstar. The fund's investments included $785 million in Lehman debt. The results were attracting new investors; the size of the fund more than doubled during the fiscal year ended in March.

Then risk caught up to returns. When Lehman filed for bankruptcy protection Monday morning, the Primary Fund was forced to take a complete loss on its Lehman investment.

Lawrence White, a professor at New York University, said it was unlikely that other funds would "break the buck," given the industry's stake in maintaining investors' confidence. But he added that the problems again underscored that some investors may have lost a healthy respect for risk in recent years.

"Too many people were not paying attention to the financial riskiness of what they were getting into," White said. "We live in risky times, and this is just another manifestation."

Investors held $3.58 trillion in money-market funds as of Sept. 10, according to the Investment Company Institute, a trade group. In a research note Tuesday, a Bank of America analyst said that number could drop sharply.

"What we are waiting to see is how this impacts people's perception of money market funds: investors always looked at money market funds as offering principal protection and same-day liquidity," wrote the analyst, Michael Cloherty. "Depending on how that perception changes, we could see massive withdrawals."

Money-market funds' popularity was critical to the growth of a broad range of non-bank financial companies, including Fidelity, Charles Schwab and Merrill Lynch, among others. All relied on their ability to offer customers something resembling a bank account to attract the money they needed.

Investment failures are already stressing the bottom lines at many non-bank financial companies. If depositors start withdrawing money, too, the problems confronting those companies could deepen.

At the same time, money-market funds are an important source of money for U.S. corporations outside the financial industry. A decline in the availability of that funding could restrict economic growth by raising the cost of borrowing from other sources.

As a result, the safety of money-market funds has helped shape the decisions of federal regulators about which financial companies to save, according to people familiar with the government's thinking. The funds had relatively little exposure to Lehman, which the government allowed to file for bankruptcy. By contrast, the funds hold large quantities of debt issued by mega-insurer American International Group, a key reason that the Federal Reserve intervened Tuesday to stave off the firm's bankruptcy by taking control of it and offering it an $85 billion emergency loan.

Worst of all would have been a failure of Fannie Mae and Freddie Mac, whose debts are held in vast quantities by money-market funds, which treat it as interchangeable with federal debt.

The industry's exposure to companies facing trouble varies widely. Money-market funds have large exposure to investment banks Morgan Stanley and Goldman Sachs.

But Peter Rizzo, an analyst with Standard & Poor's, said the funds rated by his company had little exposure to Washington Mutual, the Seattle thrift seeking a buyer as its losses rise.