In all of the market reforms since the crash of 2008, money market funds are the one sector that has been virtually untouched despite the blame they got for bringing markets to a standstill. SEC chairwoman Mary Schapiro called it her “unfinished business” last week .
Investors big and small have trillions of dollars in the funds, whose core holdings include short-term bank debt. Investors stayed with the funds even after one venerable firm 'broke the buck " in 2008.
It was the rarest of financial events, a fund failing to make good on its promise to repay the net asset value at $1 for each dollar invested.
That failure came because Reserve Primary, a pioneer in the funds business, was stuffed with too much of bankrupt Lehman Brothers' debt and it could not meet redemption calls when Lehman stopped paying. Since funds invest heavily in bank paper, Europe's woes are causing new fear. Moody's last week downgraded 15 major banks including Citigroup, JP Morgan , Bank of America, Goldman Sachs and Morgan Stanley, striking another blow for funds that buy their debt. Regulators cited these concerns last week as they warned thar money markets are still courting danger and something must be done to avoid another run.
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