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Bair - US Money Funds Highly Unstable in Crisis


Parsad
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from the article...

the three biggest money-fund providers, defended the business as popular among investors and crucial to the financing of U.S. companies and municipalities.

 

This argument doesn't sound reasonable to me. If investors choose not to put their cash in money market funds they will put their cash in other deposit taking institutions that will inevitably have to invest the cash in interest bearing assets such as financing US companies and municipalities. Granted less money might flow into these areas due to restrictions in traditional deposit taking institutions, but the system will become more robust which is more important than decreasing commercial interest rates by a couple of basis points.  (I have no idea how much it will increase commercial funding, but I'd like to know)

 

Floating money market funds sounds like a good idea...I wonder what would be another way to regulate the money market funds so they don't cause a liquidity crisis in a panic.

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