Not so stable value funds

With all the other things in the world for investors to worry about these days, whether or not stable value funds are appropriately names shouldn't be one of them, but according to this Wall Street Jounal report, apparently it is.

An unnerving new crack emerged in the $520 billion stable-value fund market as an offering for workers at Chrysler LLC dropped 11%, highlighting strains in yet another supposedly safe investment.
...
Stable-value funds, available only in tax-deferred savings plans such as 401(k)s, are designed to provide capital preservation and smooth, positive returns. But Chrysler Stable Value Fund B, offered to certain Chrysler employees and retirees through company savings plans, paid out only 89 cents on the dollar when the fund was liquidated earlier this year. Chrysler declined to say how much money was in the fund.
...
Investors have been pouring money into stable-value funds in recent months seeking shelter from the market storm. These funds generally invest in bonds and then use bank or insurance-company contracts to smooth results.

It shouldn't be too surprising that these funds are running into trouble, particularly since insurance companies are involved. Realistically, how else do you pay three or four percent in returns when the best you can do elsewhere is about half that amount?

Someone must be taking some big risks somewhere that are not being disclosed or it's just another Ponzie scheme - some combination of AIG accounting or Bernie Madoff investing.