U.S. offers insurance guaranty to money market funds

The Treasury today offered federal insurance coverage to protect money market mutual funds, hoping to halt a run on the $3.4-trillion industry after one fund suffered losses on IOUs of failed brokerage Lehman Bros. Holdings Inc.

From a Treasury news release this morning:

The U.S. Treasury Department today announced the establishment of a temporary guaranty program for the U.S. money market mutual fund industry. For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund –- both retail and institutional –- that pays a fee to participate in the program.

Cash has been exiting some money funds this week after the Reserve Primary fund, one of the nation's oldest money funds, said on Tuesday that losses on Lehman Bros. IOUs caused the portfolio to "break the buck" -- fall below $1 a share.

Investors have been fearful that other funds could break the buck as well. Those worries were amplified on Thursday, when Putnam Funds said it would close and liquidate a $12.3-billion institutional money fund because of a surge in investor redemptions.

Spooked investors yanked a net $169 billion from money funds in the week ended Wednesday, reducing total industry assets by 4.7%, to $3.41 trillion, the Investment Company Institute said on Thursday. But most of the money was being pulled by big investors, not individuals.

On a daily basis, the outflow on Thursday alone was $56.1 billion, down from $89.2 billion on Wednesday, according to iMoneyNet Inc., which tracks daily cash flows.

With the Treasury's move today, the government clearly is trying to keep small investors from joining what has so far been a limited institutional exodus.

It's not clear yet how many fund companies will join the insurance facility, but in this environment it would seem foolish for any fund to opt out and risk raising questions about its safety.

Comments

[norman rockefeller]

Ok isn't Lehman feeling like Clark Griswold right now? Check this out. Great piece.

http://www.greenfaucet.com/hanlons-pub/moose-out-front-should-have-told-you/81570

[norman rockefeller]

At least they saved a run on the banks. That would have been disatrous. With the VIX clearing 42 there was widespread panic.

[Lee Aydelotte]

Any firm requesting government help should be required to file bankruptcy first. This will allow any CEO contracts to be overridden by the court, and ensure the executives that drove these companies into the ground don't exit with their golden parachutes while their stricken companies crush the taxpayers below.

[McPalin]

Seriously, how can anyone think that Bush was a good president? He took us to an unjustified war and this whole notion of deregulation has come back to bite all of us hard. We do not need a republican administration again...I don't think this country or the world , for that matter, can take it especially with the possibility of Pailn becoming president. Really, really scary thought.

[Independent Financial Advice]

The only financial you can trust is Berkshire Hathaway. Guarantees, bailouts, insurance...its all a promise to pay. We watch the action of the common stocks of major financials and the yields on their preferred stock for market signs of which names will survive and which will not.

[subgenius]

http://www.rgemonitor.com/financemarkets-monitor/253652/the_unitary_federal_reserve_-_crisis_choreography

Read

Weep

[LilyC]

McPalin, you are seriously ignorant of the financial world if you think any of what caused the collapse of Lehman and AIG is based on activities born under the Bush administration.

[flax]

Over the last 8 years Americans have been told over and over, in actions and words, that we cant afford universal health care, or to properly take care of our veterans and victims of natural disasters, repair our failing infrastructure, or improve our education system. But when irresponsible, selfish wall street investors need some cash there seems to be PLENTY of it, readily offered up with few if any strings attached. If through all this you think that the GOP is watching out for the little guy you'd better wake up before November!

[Tom Vega-Byrnes]

Any financial firm that gets a taxpayer bail-out should submit to three pre-conditions: (i) current and future executive golden parachutes must be abolished; (ii) current failed executives must be fired; and (iii) new executives must submit to strict compensation caps. Why should my taxpayer dollars subsidize the executives’ 5000 square foot homes, yachts, private jets and luxury lifestyle?