The SEC’s Money Market Fund Proposal Leaves American Taxpayers At Risk
“Days after the Lehman Brothers bankruptcy, the Reserve Primary Fund broke the buck, sparked a panic, triggered a run on prime money market funds, caused asset fire sales and a liquidity crisis in the short term wholesale funding market. The entire financial system was on the verge of collapse when, in response to the panic ignited by a run on money market funds, the Treasury Department made history by effectively guaranteeing the entire $3.7 trillion money market fund industry. This unprecedented and historic action objectively proves that money market funds are systemically significant. Without proper regulation, they will trigger and intensify future financial crisis,” said Dennis Kelleher, President and CEO of Better Markets, Inc., a nonprofit organization that promotes the public interest in the financial markets.
“Money market funds are an uninsured investment product masquerading as a guaranteed banking product. Money market funds want it both ways: to pretend they are as safe as insured bank accounts while not paying for that insurance. This is the classic Wall Street market distortion. Rather than admitting, accepting, and paying for the risks they pose, the industry would prefer to shift those costs and risks to the government and taxpayers which will get the bill again during the next crisis,” said Mr. Kelleher.
“Unfortunately, the SEC’s proposed rules to regulate money market funds are inadequate half-measures and simply do not address the systemic risks they pose to the financial system. Moreover, they threaten to cause false comfort that these risks are being resolved, when in fact money market funds will continue to conceal risks that could once again erupt and cause catastrophic damage. Not only must the SEC strengthen the proposed rules, it must seriously consider the need for a self-insurance plan like deposit insurance at banks. Given what happened just five years ago, the American people deserve better than the illusion of reform and business as usual on Wall Street,” Mr. Kelleher concluded.
These issues are detailed in a comment letter Better Markets filed with the SEC.
Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure thereby eliminating or minimizing the need for more taxpayer funded bailouts. To learn more, visit www.bettermarkets.com.