Sunday's New York Times included a story, "The Buck Broke: So How to Retool Money Funds?" The piece, in the paper's quarterly "Mutual Funds Report, rehashes The Reserve Primary Fund's "breaking of the buck," proposed SEC reforms, and possible future changes to the structure and regulation of money funds.
It says, "After a fever of panic raced through the nation's money market mutual funds in September 2008, the industry and its regulators promised quick action on new rules that would restore health and confidence to that $3.6 trillion market. Investors are still waiting for new rules -- and the industry is warning that some proposals for a regulatory cure may do more damage than the original disease. The loudest debates have been over a proposal that would force money funds to allow their share prices to fluctuate."
The article continues, "A floating share price 'would ultimately destroy the industry' by undermining that confidence, predicted Michael R. Rosella, who specializes in investment management law at Paul Hastings in New York. He tells the Times, "Folks use their money funds as checking accounts -- and without certainty about their principal value, they can't do that."
The piece adds, "Almost none of more than 150 letters filed with the Securities and Exchange Commission supported the idea of a floating share price, although the White House nevertheless wants regulators to take a look at it. Still, that lopsided debate has obscured other regulatory proposals that could have sweeping and unpredictable consequences for the industry and its investors."
The Times cites unnamed critics, saying, "The idea of a private-sector source of insurance that fund sponsors could tap in a crisis was specifically raised by the White House, which has directed the President's Working Group on Financial Markets to study the concept. Indeed, some large fund companies are quietly exploring the notion on their own, although Mr. Stevens declined to comment on that effort. The S.E.C. proposals, however, are silent on that option -- which strikes some critics as strange, because liquidity insurance is the one thing that might reliably have prevented the Reserve run."
Finally, it says of some options, "Given how controversial these proposals are, it is perhaps a blessing that there's no sign they will be acted on quickly. The industry is still waiting for the report of the president's working group, which was supposed to report on Sept. 15 but has postponed until Dec. 1 to allow it time to review the S.E.C. proposals more fully. There are some signs that the market is weathering this continued uncertainty. While the assets in money funds have dropped since last March, trends suggest that investors are reacting more to rock-bottom interest rates than to safety concerns."
