This thought is from my partner Shaun, “The Federal Reserve’s plan to invest directly in commercial paper has a salutary effect in the short run, providing liquidity to this important market. Longer term, however, the government may be undercutting the money market funds. The risk is that the government will dominate the market for the best paper, in the same way that Fannie and Freddie came to dominate the prime mortgage market. Prime money market funds will be pushed into buying riskier credits. A better way to support both money market funds and the commerical paper market would be to put money directly into prime money market funds. Why set up a parelell system, when we already have a very effective system to provide liquidity to commercial paper issuers?”
We welcome any thoughts as to what might be done to help the money markets!
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