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from Rolfe Winkler:
Morning Links 1-27
Note: Apologies for no links yesterday. Busy day writing columns!
SEC to vote on new money fund rules (Johnson, WSJ) Unfortunately, the SEC won't do away with $1 NAVs, price fluctuations will be published on a 60 day lag. So investors will continue to treat money funds as cash equivalents, even though they aren't, and the systemic risk they pose won't really go away.
Fed weighs interest on reserves as new benchmark (Lanman, Bloomberg) This will be a key interest rate to watch whether or not the Fed makes it the benchmark. The expansion of the Fed's balance sheet over the past year+ has stuffed banks full of excess reserves, reserves that banks will lend out if the economy -- and loan demand -- picks up. The Fed needs to keep those excess reserves sequestered in order to prevent inflation. To do so, it may have to pay higher rates. For a fuller explanation see this previous column.
Failed Senate vote on budget commission shows difficulty in cutting deficits (Faler, Bloomberg) So much for a fiscal commission based on the base-closing commission...
After three months, only 35 subscriptions to Newsday's website (Koblin, NY Observer) Print subscribers get free online access. But this is still not a good showing for selling online only subscriptions. The NYT needn't worry that it's pick up will be this small when they put up their pay wall. I, for one, will pay for their content, as I pay for WSJ. I 'd subscribe to FT too if their website wasn't so slow...
from Rolfe Winkler:
Geithner: Some rescue programs will end, others won’t
Tim Geithner testified before the Congressional Oversight Panel for TARP this afternoon. A few interesting comments with respect to Treasury's bailout initiatives:
On PPIP (Public Private Investor Program):
The Treasury will continue ... its plans to buy small-business loans and to remove toxic assets from bank balance sheets through the Public-Private Investment Program, a Treasury official told reporters earlier today on condition of anonymity. The first PPIP funds are expected to begin operating later this month or in October, the official said.
Money market funds and California RANs
There’s one group of investors that aren’t likely to jump at the chance to buy California’s short-term RAN notes when they go on sale later this week: money market funds.
The notes are expected to carry a second tier rating of MIG 2, a notch below the top rating of MIG 1. That’s problematic for money market fund managers who are staring at the SEC’s proposal to limit money fund investments to short-term debt rated only the very best.
from Rolfe Winkler:
Deutsche breaks the buck
A week ago, I wrote about Paul Volcker's call for money market funds to stop using the $1 NAV. In conditioning investors to believe their principal isn't at risk, money funds can be very dangerous, systemically-speaking. When the buck gets broken ... Investors panic: Their money was supposed to be safe. Since the fund has promised to redeem them at $1 per share, instead of at the day's market value, investors have an incentive to get out as quickly as possible. The quicker they redeem, the more likely they are to get all their money back. It's a bank run.
According to a report in today's WSJ, Deutsche Bank is now launching a money fund with a floating share price:
Reforming money markets – it’s about time
The New York Times has a nice piece on SEC musings on money market reform given the run on this $3.7 trillion market after Lehman Brothers’ spectacular failure. It’s about time considering how vulnerable these funds became to market excesses during the boom. But it doesn’t look like the proposed reforms go far enough considering that most people park their money there so they can get it out quickly if needed.
You’ll remember that that Reserve Primary fund, was slammed with withdrawals in September, causing it to “break the buck” when the value of a share fell below $1 – a huge no-no in the money market world.
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The Wall
