Feature

Avoiding the next bailout

The SEC will vote soon on new rules that would reduce taxpayers’ exposure to the $2.6 trillion currently invested in money market funds.

Gretchen MorgensonThe New York Times

Aug. 29 could be the day we “end up on the hook for a big future bailout,” said Gretchen Morgenson. That’s when the Securities and Exchange Commission will vote on new rules that would reduce taxpayers’ exposure to the $2.6 trillion currently invested in money market funds. The industry is fighting the effort tooth and nail, while conveniently forgetting the government help it received in 2008 and ignoring the funds’ continued vulnerability to the next financial crisis. During the crash, the Treasury provided $50 billion to prevent money market funds from “breaking the buck,” or falling below their sacrosanct $1 share price in the event of a run by panicking investors. To reduce the chance that the government will have to ride to the rescue again, the SEC wants funds to set aside enough money to withstand future runs. The funds insist that’s not necessary, even though recently released Treasury documents suggest that several were closer to breaking the buck in 2008 than was previously disclosed. It’s true that the sector escaped the crash relatively unscathed. But that’s not reason enough to leave taxpayers exposed “when the next financial crisis comes—and it will.” 

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