We’ve been discussing the fact that the Treasury Guarantee Program for money market mutual funds and the Federal Reserve’s extensive support of the money markets, including the AMLF, CPFF, MMIFF, etc., clearly indicates that money market mutual funds are too big to fail. But only recently have some others begun thinking about the implications of these explicit, and implicit, guarantees. We’ve said for weeks, whether these guarantees are extended or not, the die has been cast. The government will have no choice but to step in to support the money markets should the “1,000 year flood” we just experience return at some point.
In our Crane Data News from May 28 (“CCMR Report Supports ICI Recommendations, Government Guarantees” at http://www.cranedata.com/news/#item-2310), we quote, “The Committee on Capital Markets Regulation, an “independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets” that counts a number of mutual fund industry heavyweights among its members, recently released a report entitled, “The Global Financial Crisis: A Plan for Regulatory Reform. This report incudes a brief section that weighs in on the issue of changes in money market mutual fund regulations. The CCMR Report supports the ICI’s recent recommendations, but also appears to come out in favor of continuing a system of government guarantees for money funds.”
The CCMR Report is the first mention (outside Crane Data conversations) to discuss the implied nature of the government’s support of money markets and money market mutual funds. While we believe that the Treasury’s Guarantee Program will terminate in September, we’re pretty confident that the Treasury cannot afford to allow another money fund to “break the buck” at any point in the near future.
We’d love to hear more on this topic and would be happy to discuss in more detail off-line.
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