Remember when money market funds were boring? Not anymore. Now they are on the cutting edge of Bail Street. The Treasury announced today that it will buy up to $5.6 billion in securities from The Reserve Fund’s U.S. Government Fund as the fund liquidates.
Basically, the Treasury is performing a limited TARP action, buying the troubled, illiquid assets held by The Reserve Fund above market levels to ensure that each money market customer receives $1 for each share. The fund had sought to liquidate itself by selling assets into the market but market values are so low this would lead to huge losses for investors.
The money, of course, isn’t coming from the $750 billion bailout. Whatever’s left of that is for Obama’s Secretary of Hope to figure out how it should be spent. These funds will come from the Exchange stabilisation Fund, which is what the Treasury has been using to guarantee money market mutual funds since September.
Ironically, The Reserve Fund was run by Bruce Bent, who founded the first money market fund ever in 1971. That was the year President Richard Nixon sought to stave off economic disaster with a 90-day freeze on wages and rents and the final closing of the gold window. Ashes to ashes, bust to bust.
Press release below.
November 20, 2008
Treasury Enters into Agreement
to Assist the Reserve Fund’s US Government Money Market Fund
The U.S. Treasury Department announced today that it agreed to assist with the liquidation of The Reserve Fund’s U.S. Government Fund, due to unique and extraordinary circumstances.The fund, which Treasury accepted into its temporary guarantee program for money market funds, has not made a claim to Treasury under the program. In a separate agreement with the fund, the Treasury has agreed to serve as a buyer of last resort for the fund’s securities, which consist of short-term U.S. government and government sponsored enterprise securities.
This action is being taken to ensure that the fund is liquidated in an orderly and timely fashion.
The agreement grants the fund a 45-day period where it will continue to sell assets at or above their amortized cost. At the conclusion of this period, Treasury’s Exchange stabilisation Fund will purchase any remaining securities at amortized cost, up to an amount required to ensure that each shareholder receives $1 for every share they own.
This extraordinary action is in response to the unique situation of the money market fund. This fund was permitted to suspend share redemptions as of September 17, in accordance with an order issued by the Securities and Exchange Commission.
No other funds participating in Treasury’s temporary guarantee program received a similar order from the SEC. Because of this, Treasury does not foresee a need to take similar actions with regard to any other funds participating in Treasury’s temporary guarantee program.
Treasury’s agreement with the fund requires the fund’s adviser and its trustees to waive their fees accrued after November 19 to the extent that fund shareholders do not receive distributions of $1 per share.
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