Photo: scaredy_kat via Flickr
The Fed’s AMLF loan progam, which some think was the best program the government set-up to deal with the financial meltdown, was crafted in part by Deborah Cunningham, the Manager of $261 billion at Federated Investors Inc., as she sat in the bathroom of her RV in the parking lot Penn State’s Beaver Stadium.According to an investigation done by Bloomberg, Cunningham is one of the self-interested “experts” whom the government had to call on to prevent a run on money market funds as investors panicked and demanded their money back.
As Cunningham sat on her toilet one fateful day, she helped craft a deal that would allow investors to pull their money from a money market mutual fund without causing a disasterous “run on,” and that would at the same time net her company billlions.
The plan was for Federated to absorb $12.3 billion from the Putnam Fund (which would have otherwise experienced a run) and through the AMLF program, issue investors shares in Federated’s Prime Obligations Fund so that they could redeem their money.
The money investors received, however, came from the Fed’s AMLF program, because without it, it would apparently have been “very difficult” for Federated to repay Putnam’s investors, says a company spokesperson who spoke to Bloomberg.
So Cunningham helped the government out back in 2008, but her aid came with a steep price tag. Bloomberg says the deal brought Cunningham’s fund $6 billion in assets at no cost – and Federated’s Prim Obligations now holds $47 billion of assets, more than double the amount before the transaction.
Some, like Bloomberg, of course point to Cunninham’s and similar deals and say, hey! That’s a conflict of interest.
It certainly might have been – but what was the alternative?
Cunningham’s is just one story of how the government put in place programs that potentially clashed with each other. More stories and the questions they raise are detailed further in Bloomberg. Click here to read more >
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