A flurry of money market mutual fund articles appeared over the past week, with more are on the way. The trend, not coincidentally during one of the slowest news weeks of the year, was led off by Bloomberg's "Volcker Says Money-Market Funds Weaken U.S. Financial System". The article that managed to stir up the heretofore lop-sided (in favor of gradual instead of dramatic change) debate ahead of the expiration of the SEC's request for comments on its Money Market Mutual Fund Reform Proposals (Sept. 9), ahead of the release of the President's Working Group on Financial Markets, and ahead of the expiration of the Treasury's Guarantee Program for Money Market Mutual Funds. Two new articles, Investment News' "Sleeping giant: Investors' $3.5 trillion in cash ready for a wake-up call" and The New York Times' "It's Time to Admit That Money Funds Involve Risk" reflect the good and the bad of how reporters have been covering the topic, either rationally or sensationalistically.
Investment News' piece writes, "Cash management should get a lot more interesting over the next few weeks as government protections for money market funds expire and new rules are considered. Cash remains the sleeping giant ... about $3.5 trillion in cash still sits on the sidelines in money market mutual funds. Given the size of that cash stockpile, which may reflect everything from a skittish institutional investor base to the gummed-up credit markets, the future of money market funds affects most investors."
The article explains, "The first big change comes Sept. 19, when the Department of the Treasury's 12-month money market fund guarantee program expires. The program has been insuring money fund assets since the Reserve Primary Fund, advised by Reserve Management Co. Inc. of New York, broke the buck last fall. After that date, other safeguards will remain in place, including a program that allows money market fund advisers to borrow from the Federal Reserve against asset-backed commercial paper in the portfolios."
They quote our Peter Crane, "The chances of any kind of a run on money funds that would force them to sell is still remote, but the die is cast and the new playbook has been written." Investment News adds, "Mr. Crane is among those who believe the raft of swift new government support programs, combined with proposals still on the table, will continue to eliminate many of the risks associated with money market funds. Last week's report that Reserve Fund investors could end up getting back as much as 99 cents per share, plus a return in the 4% range, 'will help shift the perception of risk in the money market space,' he said."
The NY Times article says, "In all the inevitable hoopla surrounding the coming anniversary of 'Lehman weekend' -- those fateful days in mid-September 2008, when the financial world seemed on the brink of collapse -- here's an important event that will almost surely be overlooked: On Sept. 18, just a few days after the anniversary, the Treasury Department will end a program that essentially gave the same kind of protection to money market investors that the Federal Deposit Insurance Corporation gives to bank depositors. The government guaranteed that investors wouldn't lose a penny."
It adds, "Here we are a year later, and the money market fund business seems back to normal. No other money funds have broken the buck. The amount of money in money funds today is not at all different from what it was before Lehman weekend. Investors have, once again, come to think of them as a supersafe, yet turbocharged, bank account. Even the Reserve Fund, which is liquidating, reported a few days ago that, if all goes well, it expected to be able to return to investors 99 cents on the dollar.... Not bad for a fund that supposedly 'collapsed.' And yet, in other ways, things aren't at all like they used to be."
