Bloomberg Interviews Levitt on MMFs
Bloomberg radio features "Arthur Levitt Says SEC Is Failing on Money Market Funds". They write, "Arthur Levitt, former Securities and Exchange Commission chairman, says an S.E.C. proposal on money market funds "would only make matters worse." Levitt talks with Bloomberg's Tom Keene on Bloomberg Radio's "Bloomberg Surveillance"." Levitt comments, "I think that the SEC, under tremendous pressure that started with Mary Shapiro with rebellious commissioners, has come out with a series of alternatives that really don't answer the problem and will make it a lot worse.... Their proposal ... would apply only to institutional prime funds and what I think is more serious is that they would allow fund directors to charge for redeeming. If anything is going to cause a panic in the money market fund world, it is the threat that investors are going to be charged or held back from redeeming. The redemption fees or what they call gates actually make runs more contagious. If one funds announces a fee or gate, that sends a signal that all its directors are worried about a run. These ideas are just terrible." Levitt also erroneously answers, "Many times," when asked how many times money funds have broken the buck. (Only two money funds have ever "broken the buck." This answer is shocking given Levitt's former position as Chair of the SEC.) Levitt adds, "The only way to deal with this, in my judgment, is to count those funds, mark them to the market, and if they're selling for a buck, if they're selling for 98 cents, mark them at 98 cents." (This statement too is baffling since money funds must already round down if the value breaks below 99.5 cents.)
