Federated's WSJ Letter to the Editor
We just stumbled across Federated's June 28 Letter to the Editor of the Wall Street Journal. Chief Legal Officer John McGonigle writes, "It looks like the Wall Street Journal in Monday's editorial 'Money-Market Mayhem' got it exactly wrong -- again. It was dismaying to see an editorial in one of nation's most important business news periodicals misinterpreting the use of high quality European-bank debt in money market funds.... The Journal generally looks to markets as an indicator of reality in order to discern truth from media hyperbole. In this case, the editorial fails to note that the market has not penalized European-bank debt used by money market funds. In fact, rates reflect the market's agreement about their minimal credit risk and have barely moved even as the media invokes the curious spectacle of a European-bank debt boogey man threatening money market funds. The editorial went on to repeat the canard that money funds survive on some kind of implicit taxpayer guarantee. In point of fact, shares of money market funds are not guaranteed by the government or their sponsors, and the cover of every prospectus says so. Shareholders of the Reserve Primary Fund did not receive government support. It is true that during the recent financial crisis, investors, including money market funds and debt issuers, benefitted from government intervention designed to stabilize short-term debt markets that had largely ceased to operate. That intervention, rather than costing taxpayers, made money for the Treasury. We believe that systemic reforms implemented since the crisis and the recent amendment to the regulations governing money market funds will obviate the need for similar action by the government in future crises. The simple fact is money market funds are an example of regulatory success. They are a good deal for shareholders, the capital markets, and taxpayers. Perhaps the better course for those who continue to question the efficacy of the reforms already initiated would be to step back and watch how these highly resilient and successful products continue to thrive and deliver value to shareholders, taxpayers and the capital markets."
