Attorney Melanie Fein wrote last week in American Banker, "Money Market Madness, Indeed". She comments, "A recent Wall Street Journal op-ed by Eric Rosengren ("Flirting With Money-Market Madness", Nov. 28) demonstrates how far from reality the Boston Federal Reserve Bank president is willing to go in his quest to blame money market funds for the financial crisis. His remarks would be laughable were they not so outrageous and potentially damaging to the financial system. Almost nothing Mr. Rosengren says or implies about MMFs is true. MMFs had nothing to do with causing the financial crisis, which was a product of central bank blunders, flawed national housing policy, and failed bank supervisory policies. MMFs were victims of the crisis, not perpetrators. They nevertheless performed admirably in providing liquidity to their shareholders amid unprecedented chaos. Rosengren believes the funds should have provided liquidity to big banks instead. He complains that MMFs liquidated their holdings of bank-sponsored commercial paper rather than holding onto it, even after it became apparent the commercial paper was loaded with subprime mortgages not fit for MMF portfolios. What Rosengren won't acknowledge is that the government facilities designed ostensibly to support MMFs during the crisis were little more than a backdoor bailout of big banks, which lacked sufficient capital to hold their own toxic commercial paper after MMFs rejected it. The problem he needs to address is not MMFs but rather excessive short-term borrowing by banks to fund their "shadow banking" activities. Rather than fix that problem by appropriate banking reforms, the Fed's solution is to demand demolition of MMFs, which likely would worsen the problem."

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