Are Money Market Mutual Funds in Trouble?
Last month, there was a Group of Thirty meeting at Davos to try and figure out some way to change the way things are done in terms of various monetary regulations and taking care of a number of financial entities. Of course, most of the focus was on regulation of capital markets — since the deregulation of capital markets was one of factors (but not the only) that led us to where we are right now. However, there was also a little bit of talk over what to do about money market mutual funds, reports MarketWatch:
Tucked into three paragraphs amid an 82-page report was a suggestion that money-market funds should either let their net asset values float freely or convert to “special-purpose banks” — steps that fund-industry representatives say would effectively kill money-market funds in their current form.
At issue is the fact that there are banking services (such as check writing ability) that some money market mutual funds have. Some contend that money market funds should be subject to the same organization as banks. Unfortunately, organizing them like banks would effectively destroy any advantage money market mutual funds have over banks. Besides, points out Mercer Bullard in the MarketWatch article, money market mutual funds are in a much better place than banks:
“It’s an offense to money-market funds to call them any kind of banks,” said Mercer Bullard, assistant professor of law at University of Mississippi and founder of consumer group Fund Democracy.
“Banks have lost billions of dollars,” he added, “and money-market funds have proved them to be wasteful and inefficient. One IndyMac costs us more than all the money-market fund failures in the past and future combined.”
It does seem a little foolhardy to change up these money market mutual funds for the sake of regulating them, when things seem to be going well. We’re far enough into the global financial crisis to see that these mutual funds are completely different from derivatives and other rather opaque investments.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
