"A Random Walk Down Wall Street" author Burton Malkiel writes "Money market funds come under attack" in Thursday's Financial Times. He comments, "Money market funds have been an unambiguous benefit to both individual and institutional investors, as well as to non-financial corporations and municipalities in need of short-run financing. But now the very existence of the $2.6tn money fund industry is under attack. Both present Federal Reserve chairman Ben Bernanke and former chairman Paul Volcker have called for stronger oversight of money funds because of their destabilising potential. And Treasury Secretary Timothy Geithner recently urged the Financial Stability Oversight Council to push forward new rules to rein in the industry as essential for financial stability.... [T]here are easier ways to make the system less vulnerable. For example, the liquidity, duration, and quality standards for money funds could be further strengthened. The SEC made progress in 2010 in establishing minimum requirements, and these could be used as a framework for further discussion. Another idea is to establish "circuit breakers" that take the form of standby liquidity fees on redemptions. For example, liquidity fees could be imposed if a fund's liquidity fell below a prescribed weekly level. The opportunity now presents itself for the money market fund industry and financial regulators to come back to the table to discuss viable alternative solutions. While a compromise should be based on give and take, neither side should abandon fundamental principles. For the industry, the principles should be based on maintaining a stable, safe, and convenient financial vehicle for their investors. For the regulators, the principles centre on ensuring financial stability. Surely there must be a common ground solution that preserves the product and protects markets."
