If the Economic Stabilization Act had passed, Treasury would have been barred from using the Foreign Exchange Stabilization Fund as a piggy bank to fund the costs of this program.

The libertarian in me says the whole program is bad and a moral hazard. Read your prospectuses, people! “No promises that a $1.00 NAV will be maintained.” How could it be clearer?!?

I’ll answer my own question. Our industry is addicted to complexity. We have Prime mmkt, Govt mmkt, Tsy mmkt, Tsy w/repos mmkt, Tsy w/no repos mmkt funds, muni state-specific mmkt funds, muni no-AMT mmkt funds. It’s no wonder people were confused. But why don’t they read the prospectuses?

Is anyone else fascinated by the Reserve Funds? I considered them conservative, based on their rhetoric, though I stick with Vanguard. I am eager to find out if they did indeed tip large investors off to the Lehman loss.

I am also curious why they stuck at $1 the Monday when Lehman declared bankruptcy, and did not write down the debt until Tuesday.

Two actions I would think would be cause by investors.

Maybe I got drunk and missed it.

Oh wait, I forgot — we’re under “financial martial law” now. Rule by decree, and all that. So Hank can just roll out of bed and make this stuff up, the way ol’ Frank Roosevelt used to fix the gold price.

So was today’s triumph in the House just a pyrrhic victory? I mean, if Hank can create scribble a money market guarantee program on a lipstick-stained cocktail napkin, why can’t he just write himself a check for $700 billion?

Beats the hell outta me …

– Juan Falcone

Also, muni money markets are going to blow since they own almost exclusively VRDNs, ARS with a liquidity guarantee from XYZ financial institution.

Btw Money market fund margins are generally NOT razor thin. They charge huge fees, take some risk and rake in the dough from lazy retail clients.

I don’t see this insurance as being used much; even 1 bp per 90 days may be seen as a burden in an industry with razor-thin margins, but it will be useful to build confidence. But hopefully the “temporary” aspect will be realized. The competition against bank deposits is a valid concern, but then, when Goldman Sachs is queuing up to try to attract depositors, everyone is competing for cash these days.

And that would do nothing since the fund had to exist 9/19. This program is nicely done in that it prevents any new money from leaving banks to go into MMFs.