WSJ Editorial: "Liberating Money Funds"
Yesterday, a WSJ Editorial entitled, "Liberating Money Funds", writes, "Judging by the long faces on money-market fund lobbyists last week, we're starting to think Washington might reform an industry that received a federal rescue in 2008. On Tuesday, the federal Financial Stability Oversight Council proposed one rule change that would protect taxpayers in the next crisis, plus two others that may not. The council's "Alternative One" for reform is the best and the simplest: Allow the share prices of money-market mutual funds to float, like the prices of other funds. Since money funds are not insured deposits, investors should understand that they are buying securities that can lose value. The industry has been allowed to employ a novel accounting technique that lets money funds report a fixed value of $1 a share, even if the underlying assets are worth slightly less.... And politicians will be less likely to see a price decline as a cataclysm requiring an industry-wide guarantee like they provided in 2008. The council's other two reform options require funds to maintain capital buffers to absorb losses. One option has a tiny capital buffer of 1% but demands that large investors keep 3% of their account "at risk" by imposing a 30-day delay on withdrawals. The other option raises the capital buffer to 3% but lets shareholders drain their accounts at any time. These last two options approach bank-style regulation but with less capital than will be required of banks. The customer would continue to receive a confusing message. Is this a security that can lose money or is it really a bank account?"
