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Bernanke Warns That "Money Market Mutual Funds Not 100% Safe"
Federal Reserve Chairman Ben Bernanke was unusually candid yesterday at a Senate hearing when he admitted there were “still more risks” of a “run” in money market mutual funds” owned by investment giants such as Fidelity, Putnam and T. Rowe Price. “It’s not true that money market mutual funds are 100% safe,” he told a Senate committee hearing.
“Some of the tools we used in 2008 to arrest the run on funds are no longer available,” Bernanke explained to an inquiring Senate committee hearing. He singled out the inability of the Fed to guarantee 100% of the public’s holdings in these funds, or in other short term investments such as commercial paper, which was guaranteed in 2008 gto allow corporations to roll over their short term debts. Bernanke also mentioned the requirement included in the proposed rules to Dodd-Frank Bill that would require investors to leave 3% of their holdings in money market funds when they liquidate their positions. Bernanke and others have suggested this new rule may dissuade some investors from leaving their money in these funds, which today hold $3 trillion in assets. Until the Lehman bankruptcy and the resulting meltdown in the financial markets the public has always considered 100% safe and secure.
Just last week SEC chairwoman Mary Schapiro also warned that a run on a single money market fund “could trigger a broad and destabilizing “ follow-on in the $3 trillion money market funds that hold the short-term savings and deposits of individual investors and are often considered their safety funds in case of an emergency.
Bernanke was more sanguine about the Fed’s proposal to keep interest rates near zero until well into 2014. As only 10% of household wealth is in fixed income securities, both short and long term, Bernanke suggested that any trend to higher rates won’t damage much of household wealth. “It’s better to have 90% (of household wealth, the value of homes, equities, small businesses) go up in value” rather than the price of bonds, Bernanke suggested.
“The benefits of lower interest rates until 2014″ should help economic activity” including the value of commodities, the Fed chairman said in making the case for his policy. His theme was that the private economy should benefit more from lower interest rates than any damage they might doi to savers and retired pensioneers.
Capt. Shekhar Gupta [ Pilot, DIAM, M.Ae.S.I., MAOPA [USA] ]
Blog : http://shekharaerosoft.blogspot.in/
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