When I called Vanguard, they told me that the Prime Money Market holds a variety of debt instruments, including Fannie Mae bonds. The GSE bonds are not listed in the prospectus.

I did not inquire about CA Tax Exempt, since I only have a couple bucks in that one.

So perhaps the CA Tax Exempt is safe. Regardless, if Fannie Mae goes bankrupt, the government will likely bail them out. They bailed out a hedge fund, with much less exposure to global markets than Fannie Mae has. So I wouldn’t really worry too much about the money market deal. It’s just if they do bail out Fannie Mae, they’ll not raise our taxes but print more money, really raising inflation.

I have a funny story. I took my youngster to the bank to make a withdrawal today, and he said, “Mom, where do they keep the money?” I blurted out,”They don’t keep money here, it’s all paper entries. If everyone withdrew their deposits, there isn’t enough here to handle it. See those folks sitting there, signing their loan documents? They have your money. The money is wired to everyone anyway, so we don’t need real money anymore. We pay with debit cards and checks. So son, there is probably a few thousand bucks in this bank, and that’s all they need”. He was amazed at all this information.

But the system works, so that’s good enough for me.