The elitist establishment hates money markets, they prefer you keep your money in their banks, Chase, Citi etc.
They are going to make it very dangerous, through their tool, the SEC, to keep money in money market accounts. First, as FT explains, they are going to drive money markets to only buy government securities, especially institutional money market funds. In other words, money market funds will all be about propping up the government debt structure:
Fund managers are jostling to keep hold of $900bn of assets that could be shaken loose by new US rules on money markets funds due to be unveiled this week..
Firms are planning new products, systems and marketing efforts to stop the money being moved to bank accounts, while at least one, Federated Investors, is considering suing the Securities and Exchange Commission to halt the regulations.
Under the SEC proposal, to be published on Wednesday, certain funds would have to switch to a floating share price instead of the current fixed $1-a-share cost. That will make them less like bank accounts, because investors will see their balance fluctuate.
The rule is expected to be applied to funds holding about $900bn of the industry’s $2.6tn in assets, and could prompt customers to consider moving money to banks, industry executives say, or keeping it in unaffected money market funds, separate accounts, or alternative higher-yielding fixed income funds.
The industry believes that, after intense lobbying, it has persuaded the SEC to limit the floating share price rule to funds that invest in corporate debt and possibly municipal securities... These so-called “institutional prime” funds were at the heart of the panic that swept the market in the days after Lehman Brothers collapsed in 2008.
Money market funds that buy only federal government debt or which are sold only to retail investors are expected to be exempt
But here is the kicker, read it slowly, read it twice and then get your money out of money market funds now:
The SEC is also planning to allow fees and restrictions on redemptions in times of stress, but it is not clear how widely these will be applied across the money markets.Any restrictions on redemptions may not be severe at first, but the regulations will only become more restrictive over time. Don't waste time thinking you are going to monitor the situation and get out later. Get out now, when the getting is easy.
UPDATE: It's Official: SEC Will Allow Money Market Funds To Stop Redemptions During Tumultuous Periods
Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and author of The Fed Flunks: My Speech at the New York Federal Reserve Bank.
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