Friday, September 18, 2009

An End to Money Market Insurance

The Treasury Department's guarantee of all funds put into money market accounts expires today, a year after the program was introduced. The program started after the Reserve Primary Fund, a major money market fund, broke the buck, or fell below a dollar a share and saw its assets actually decline in value.

There has been some talk of big institutional investors taking their money out of money market funds now that it's no longer guaranteed; indeed there has been more than $50 billion taken out of money market finds this week, which is a much higher number than normal.

But some perspective is in order: There is still $3.5 trillion invested in American money market funds, which means this week's withdrawals amounted to little more than 1 percent of the total assets. And if those assets are coming out of money market funds, they are probably going into stocks and bonds, which is a healthy place for them to be.

And finally, let's not forget why the Reserve Primary Fund broke the buck: It had a huge stake in Lehman Brothers when that investment bank collapsed. It's safe to say that if we reach another point where major investment banks are failing, money market funds won't be the foremost of our concerns.

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