HLS, I think we have some confusion regarding terms. When you say, “I don’t think that there are many institutions that hold these loans,” I think you mean many “depository institutions.” Correct me if I’m wrong. (Otherwise, you point out correctly that pension funds, insurance companies, hedge funds, etc. own lots of these mortgages via CDOs, CMOs, etc. – these are undoubtedly “institutions.”)
While it’s true that most of these funky loans are wrapped up in securitizations and are not owned by depositories, a HUGE amount – in the hundreds of billions – are still sitting on the balance sheets of traditional depositories like Downey, First Fed, WAMU, Wachovia (formerly Golden West), Countrywide Bank, etc. Believe me: the thrifts and thrift-like banks are sweating this situation – they’ve got boatloads of direct exposure to the dreck.
Regarding bank money market funds, yes, technically you’re correct that “A bank money market account that is NOT FDIC insured could also have exposure.” But this is a bit misleading. The exposure here is largely to the money market fund “breaking the buck,” so to speak, because some portion of its short-term investments go sour. I defy you to find a single “bank money market fund” that is not FDIC insured.
There may be a very VERY small handful of traditional banks in the United States that don’t carry FDIC insurance. But their numbers are so small as to be inconsequential. FDIC insurance is a sine qua non of operating a traditional bank.
