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"Money Funds Are Ripe for '​Radical Surgery'" writes Bloomberg columnist Jane Bryant Quinn in a commentary piece today. She mysteriously tries to resurrect the Group of 30 proposal (​see Crane Data'​s January 19 News "​Group of Thirty Recommendation Poses Threat to Money Market Funds"), saying, "I'​m among the last people standing who think that Paul Volcker is right about money-​market mutual funds. They pose a systemic risk to the financial system and need a radical fix."

She continues, That'​s not going to happen, at least not now. The Securities and Exchange Commission proposes to tighten up the regulations governing money funds but only by a little bit. The new rules won'​t force much of a change in the way that money funds operate now."

The Bloomberg article says about bank deposits vs. money funds, "There'​s a difference between the two: Banks have to hold reserves against demand deposits and pay for Federal Deposit Insurance Corp. insurance. Money funds offer similar transaction accounts without being burdened by these costs. That'​s why they usually offer higher interest rates than banks."

It adds, "In most cases, money-​fund sponsors have come to the rescue of their funds if any question arose about the $​1 value of their shares. Peter Crane, president and founder of Crane Data LLC in Westboro, Massachusetts, says as many as one-​third of the funds will have needed support by the time this global financial squeeze abates."

"​But you can'​t be sure that sponsors will always be willing or able to bail out their shareholders, says Jack Winters of Hingham, Massachusetts." He says, "Dealers supported auction-​rate securities for 25 years until their financial situation precluded it."

The Bloomberg piece adds, "Retail money funds, conservatively invested, aren'​t as vulnerable to runs as institutional funds and may be safe in their present form. The danger lies with the hot-​money institutions that can pull billions of dollars out of a fund in a millisecond. Of course, big investors could also start a run on money funds that fluctuate too much in price. But they would be less likely to sell if they'​d lose money on the trade, Winters says."

Finally, Quinn'​s article says, "The SEC didn'​t propose a floating NAV. It merely asked for comments on the idea." It quotes Crane, "It'​s off the table. The crisis is over. The need for radical surgery has lost its impetus." But the article adds, "​That is, until the next time. Will money funds be the only institutions '​too big to fail' to escape the costs?"

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"​Time To Cash Out Of Money-​market Funds" says columnist Chuck Jaffe on MarketWatch. He says, "[​I]​f you are an investor in money-​market funds, heading for the exits with the masses is probably a smart idea right now, because investing in money funds is the Stupid Investment of the Week." But he says, "Clearly, money funds can serve a purpose beyond simple yield. Some investors use check-​writing and debit-​card features that typically make their money-​fund a better-​yielding alternative to an interest-​bearing checking account. And many money funds are linked to equity accounts, allowing movement into the stock market on a moment'​s notice; an investor who pulls cash from a money fund to put in an online savings account faces an opportunity cost, in the form of the few days needed to access their cash and get it into the market." He quotes Peter Crane of Crane Data, which publishes the Money Fund Intelligence newsletter, "If you are parking money waiting for the right opportunity, money funds have you ready to go. If you move the cash to an EverBank account [​for example], you will get a better return while it'​s there, but it will also take a few days to get it out and move it to the market if things get to that point where you feel it'​s right to invest more. So you have to decide what is most important to you, whether it is the return you get or the ease of moving the money or the convenience of not having to get new checks and debit cards." See also, "State'​s sale of short-​term debt faces hurdles".

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A panel session entitled "​Perspectives on the Future of Money Funds", which features Peter G. Crane of Crane Data LLC, Randy Merk of Charles Schwab and Paul Schott Stevens of the Investment Company Institute, has been added to the agenda for Schwab IMPACT 2009. Schwab'​s annual conference for independent investment advisors will be held September 13-​16 at the San Diego Conference Center. The money market fund discussion will be held Tuesday, Sept. from 12:​45-​2:​00pm (​Pacific). The description says, "Discover the latest on money market mutual fund regulations and the results and recommendations from the ICI Working Group'​s report.... Review the SEC'​s proposed amendments to money fund regulation, the ICI'​s wide-​ranging study of money market funds and recent market events. Hear from ICI working Group members and money fund experts on how industry participants and regulators intend to make money market funds more resilient. Don'​t miss the opportunity to listen in on a lively discussion of the strenths, weaknesses and future of money market fund regulation." Also, don'​t forget to register soon for Crane'​s Money Fund Symposium, which is being held August 23-​25 at the Renaissance Hotel in Providence, Rhode Island. Registration is $​500 and space is limited. In order to secure a room and the discounted hotel rate ($​169), reservations must be made by July 29.

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The San Francisco Chronicle'​s Kathleen Pender asks "​How safe are California tax-​free money funds?" A reader wrote in saying, "I was wondering about the relative safety of California tax-​free municipal money market funds. Has the risk become much greater than a regular taxable money market fund?" The article quotes, "Peter Crane, who runs CraneData.​com, says that California money market funds are as safe as ever. His reasons: One, the managers of California money funds he has spoken to say they have not owned any California general obligation debt for months.... [​M]​oney funds must comply with strict rules that limit their holdings of risky or illiquid securities. As the state'​s budget crisis has worsened, they have been avoiding California'​s commercial paper, forcing the state to find other buyers at higher yields.... Two, tax-​exempt money funds are owned mainly by individual investors, who are much less likely than institutional investors to demand their money back all at once.... Three, most large tax-​free money market funds are guaranteed by the U.​S. Treasury through Sept. 18. The guarantee only applies to balances that were in the fund on Sept. 19, 2008. The guarantee program was put in place after the Reserve Primary Fund fell below $​1 per share and sparked a panic that spread far beyond the fund industry." See also the Chronicle'​s "​State'​s short-​term debt ratings suffer."

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