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Money Market Funds: Treasury to the Rescue

September 19, 2008 RSS Feed Print

To stave off a money-market mess and restore confidence to the financial markets, the Treasury says it will insure the holdings of money-market funds that pay a fee.

The Treasury announced plans Friday to use up to $50 million from the Depression-era Exchange Stabilization Fund to guard money-market funds from a collapse and shore up confidence in the financial markets.

"Concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets," the Treasury said in a statement.

Meanwhile, the Fed announced its own plan to meet the demands of money-market redemptions. It will expand emergency lending to allow commercial banks to finance purchases of asset-backed paper from the funds.

In related news, T-bills were knocked lower early Friday after piling in Thursday on intense market unrest.

Earlier this week, the Reserve Primary Fund "broke the buck" when its shares fell to 97 cents (money market funds strive to maintain a stable value of $1 per share.) Once the fund crossed that threshold, its adviser halted redemptions as a flood of investors bolted, further exacerbating the fund's decline. On Wednesday, shareholders who didn't redeem their shares before the company halted redemptions filed a lawsuit against the fund's adviser.

Other firms are running into trouble. Putnam Investments said Thursday that it's liquidating the institutional Putnam Prime Money Market Fund and distributing the fund's assets.

Investors pulled a record $89.2 billion from money market funds on September 17, according to the newsletter Money Fund Report (via Bloomberg).

So money market investors, breathe deep.

Tags:: money market funds,; Treasury Department,; Wall Street,; investing

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The recent bailout is an excellent step in the right direction.The main question is: When will this situation be resolved? The economist all have different opinions and comments but no positive solutions. The most recent information is it will take years and the matter will worsen before it improves. In he meantime it appears that the firms which were bailed out are not using the money for which it was intendeded.
Fear mistrust and lack of faith in by investors is evident and rightly it should be. CEOS and company managers should be rewarded on performance and if they are misusing investors/companies money should be disciplend,terminated or evne prosceuted, if any criminal activity did take place. These are a few of the actions which I believe would restore faith in our officals and motivate investors to reenter the market. Until then I don't expect much action on the part of investors to reenter the market. Another good savings would be within our military. Bring all of the troops in Iraq Iran and Georgia home. How many trillions of dollars has been spent since these wars began?

Paul of NJ 2:58PM December 08, 2008

An excellent action... Investors need at this time more security and more assurance that their money will be safe until this crisis passes. Prior to this action investors had little assurance of any assistance. Granted unlike the 1930S before the formation of the SEC investors had to accept more risk. We have come a long way since then but we still need to be extremely cautous.

Paul of NJ 10:01AM October 04, 2008

Some of us took lower yields in banks to be conservatively safe against precisely this possibility. Now, the Federal Govt intends to bail out the risk-takers. Not exactly fair, but, hey capitalism is about screwing the other guy. Isn't it?

of 11:39AM September 19, 2008

Money Market Funds: Treasury to the Rescue

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