Apocalypse Then: Money Funds Stood on the Brink

Moody's issued a report Tuesday finding a widespread "Apocalypse Now" among money market funds in the days surrounding the September 2008 implosion of Reserve Funds' Primary Fund, which broke the buck at 97 cents on the dollar due to heavy exposure to Lehman Brothers paper.

The report says at least 36 of the 100 largest money market funds, issued by the 20 largest mutual fund complexes, were in danger of breaking the buck, were it not for their investment advisors' decision to spend $12 billion to absorb part of their fees.

Money Management Executive and others, including iMoneyNet and Crane Data, warned of the real and present danger that existed in the money fund industry in the fall of 2008. By some counts, 227 funds were supporting their net asset values (NAVs) at a loss to the fund company.

Were it not for the extraordinary actions of the Investment Company Institute and the Money Market Fund Working Group that Vanguard Chairman emeritus John Brennan spearheaded to cooperate with the Federal Reserve and the Securities and Exchange Commission -- there would have been a full run on money market funds. Average Americans would have discovered their money and possibly even their paychecks frozen.

Moody's notes that should money market funds, which are yielding only a few basis points, face another crisis or a continued low interest rate environment, they may not be as inclinded to absorb fees to prop up their $1 NAVs. In recent months, for instance, MME has warned of U.S. money market funds with exposure to European debt.

If the September 2008 story of the Primary Fund were turned into an "Apocalypse Now" movie, would Brennan be cast in the Harrison Ford role - ?  ICI President Paul Schott Stevens as Martin Sheen - ? Reserve Funds founder Bruce Bent ... Marlon Brando - ?
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