Why the government rushes to ‘save’ money-market funds

First have a look at the following two articles:

Rushing to save money-market funds

In effort to calm critical part of the broader financial system, Fed and Treasury take three-pronged measure to stabilize troubled funds.

NEW YORK (CNNMoney.com) — Coming to the rescue of a bedrock of American investing, the Treasury Department and the Federal Reserve took three big steps Friday to shore up the $3.3 trillion U.S. money-market fund industry.

Investors have been fleeing money-market funds after a week of chaos on Wall Street that included the bankruptcy of Lehman Brothers, an $85 billion government bailout of American International Group and a sweeping plan for the federal government to buy up financial companies’ troubled mortgage debt.
……………..
Experts: No need to cash out

Money-market experts say investors shouldn’t panic. They felt most funds were safe even before Friday’s government action, which will only add more confidence in the investments.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 19, 2008: 1:13 PM EDT
Full article here: CNNMoney

Money-Market Funds Get $50 Billion Backstop From U.S.

Sept. 19 (Bloomberg) — The U.S. will insure money-market funds against losses for the next year as it seeks to prevent a run on $3.35 trillion of assets that average investors and institutions rely on as a safe alternative to bank deposits.
…………….

“They’re putting up a firewall,” said Paul McCulley, managing director at Pacific Investment Management Co., which oversees $830 billion including money funds. ``It’s the ultimate nightmare to have a run on the money markets — that is truly the Armageddon outcome — and they’re not going to allow that to happen.”

By Christopher Condon
Full article here: Bloomberg

Imagine what a run on the banks would do to the financial market.

Now you know why the government and ‘the experts’ panic that the investors might panic.

Watch this video to understand more about money and why a run on the banks would be so devastating.

Money As Debt

Source: Google Video

Paul Grignon’s 47-minute animated presentation of “Money as Debt” tells in very simple and effective graphic terms what money is and how it is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its “Duncan Initiative” received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States

Leave a Comment