July 23 (Reuters) – New money market fund reforms are half
measures which will fail to end investors’ illusion that there
is such a thing as a safe asset.
The Securities and Exchange Commission on Wednesday adopted
new rules aimed at forestalling runs on money market funds,
notably one which will force ‘prime’ institutional funds to
allow their value to float. The new rules also allow all money
market funds finding themselves short of liquid assets in
stressed markets to impose temporary impediments to redemptions
or charge fees of up to 2 percent. Both sets of rules take
effect in two years’ time.
The rules fall ruefully short in that they exclude retail
money market funds, which will continue to be allowed to indulge
in the polite fiction that their value is stable at a dollar per
The dollar per share convention has unmoored investors,
institutional and retail, from the relationship between risk and
reward. The real value of all assets fluctuates, and the only
nominal values which can remain truly stable are those of
securities issued or insured by someone with the right to print
money. Those facts may raise the cost of doing business and
raise the cost of credit, but they remain facts nonetheless.
Policies, like the SEC’s, which attempt to finesse these
facts will either fail disastrously or end with the government
picking up the tab for private speculation.