“Efforts to overhaul money market funds has posed not just a challenge to the Securities and Exchange Commission, which will finally vote on an overhaul package on June 5, but also to its new overseer, the supercommittee of agencies known as the Financial Stability Oversight Council, or FSOC.

The outcome of these efforts will tell us just how much on an overseer this supercommittee will be, which in turn will tell us something about how much the Dodd-Frank Wall Street Reform Act, which created FSOC, has, in fact, changed Wall Street.

A lot of blame for the depth of the financial panic in September 2008 can reasonably be laid at the door of the money market funds. The collapse of the Reserve Primary Fund – it broke the buck, which money market funds were designed and regulated to never do, on Sept. 16 of that year – led to the collapse of the entire asset class. Because money market funds were large purchasers of the commercial paper corporate America uses to finance its operations, that market ground to a halt as well, creating serious problems for the real economy.

In short order, the Federal Reserve found an obscure Depression-era statute (the Gold Reserve Act of 1934, if you’re keeping score at home), with an emergency fund attached to it, and used both to bail out the money market funds. It was good news for the economy, but a real stretch of the legal authority of the Fed. The S.E.C., which had nominally regulated money market funds, was entirely circumvented, and the Gold Reserve Act had never been used to bail out a domestic financial intermediary before.”

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