Treasury Secretary Timothy Geithner made his stance on money market managers clear earlier today: new rules are necessary for the management of these funds totaling $2.6 trillion.
This comes in the midst of continued concerns over stricter regulation over the Street, and I'm sure is unsettling to some of you all out there (though I don't know who out there is actually involved in the money marketing managing business...)
Some background info: investors rushed to money market accounts during the 2008 crisis because they were considered to be safer investing vehicles than most anything else at the time. What this means is money isn't in banks but is instead in money market accounts, worsening the credit freeze. Simple, right?
Mr. Geithner urges the council formed in the midst of the 2008 crisis to gather public comments on a range of reform ideas. Here they are:
1. Money market funds must hold loss buffers
2. No longer allow funds to value investors' shares at $1 when the assets should reflect a value slightly below $1
Check out the Dealbook articles here
Recently, the government has been more outspoken about its opinions with respect to certain types of investment and securities. As the Dealbook article mentions, part of the reason this is negative doesn't involve regulation at all -- if an investment vehicle is deemed questionable by the government, whether there is any legitimacy to this claim is irrelevant because investors will be driven away.
Also, as someone who is likely a layperson when it comes to money market accounts, can someone explain the discrepancy between "slightly below $1 shares" and the $1 market value of shares? How does this contribute to the instability that Geithner seems to be afraid of?
Also, what does these two new regulations have to do with discouraging people from fleeing to money market accounts if things get rocky? Ostensibly they would worry that another credit crunch could happen, right?
What do you all make of the government's latest pushes for regulation? Questionable? Necessary?
Much love.
I think the basic problem with money market funds can be summarized like this:
Solutions: 1. Government sacks up and backs funds in crisis scenarios, but regulates who can issue paper, thus potentially harming issuers on the borderline, with the regulators essentially picking winners/losers. 2. The issuers are forced to take the chance they might lose money, and regulations are placed on pulling money from funds, but this destroys their original purpose as ultra safe/highly liquid investments. 3. Loss buffers are put in place, though due to the uncertain nature of losses, determining an exact amount that will give investors confidence in a crisis is difficult, and if the solution is too expensive, either the FIs or issuers (whoever is funding this loss buffer) won't find this method of financing acceptable anymore, leading to less liquidity/funding, lower economic activity, higher cost, etc..
Any other ideas?
Cum odio aut distinctio fugiat. Ut sit similique vitae fuga fugit. Officiis rem atque quia.
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