Money market fund guarantee program to end

Sep 10, 2009 @ 12:19 pm

By Associated Press

The Obama administration said today that a program used to guarantee as much as $3 trillion in money market mutual fund assets will end on schedule next week.

The program, which will be closed down on Sept. 18, had no direct cost to taxpayers and earned more than $1 billion in fees paid by the mutual fund industry, according to the Treasury Department.

It was established at the height of the financial crisis last fall after a large money market fund "broke the buck" — meaning the value of its underlying assets fell below $1 for each investor dollar put in.

Investors were exposed to losses after the Primary Reserve Fund conceded that $785 million it had invested in the debt of Lehman Brothers became worthless after the investment bank's bankruptcy in September 2008.

The funds are a mainstay of financial management for U.S. families and companies because they're viewed as safe and easily accessible investments that offer returns exceeding those of conventional savings accounts. They generally invest in the safest types of debt such as Treasury bonds.

The collapse of the fund run by New York-based Reserve Management Co. last fall was only the second such instance in the nearly four decades that money-market funds have been available.

The "breaking of the buck" by the Primary Fund — the first U.S. money fund, established in 1970 — stoked fears over the safety of the trillions held in the money funds.

The Securities and Exchange Commission later charged Reserve Management and its two top executives with civil fraud, saying they withheld key facts from investors. The firm and the executives have said they will defend themselves against the SEC's allegations.

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