SEC tries to fix unfixable money markets

The proposal, which is set to draw stiff opposition from financial groups and could create internal tensions at the SEC, would affect both fund firms and investors. Firms would have to set aside capital reserves using one of three new methods. Investors who wish to sell all of their holdings at once would be able to get only about 95% of their money back immediately, with the remaining 5% returned to them after 30 days.

"Money-market funds remain susceptible to runs and to a sudden deterioration in quality of holdings, and we need to move forward with some concrete ideas for proposals to address these structural risks," SEC Chairman Mary Schapiro said in an interview last week.

Money markets were popular because they were sold to unsuspecting investors as a free lunch: big yields with zero credit risk and 100% immediate liquidity.

Well, Lehman showed that there's no such thing as zero-credit risk, and thanks to Zimbabwe Ben's perpetual Zero-Interest Rate Policy, there's no yield either.  And now Mary Schapiro wants to make it a trifecta by taking away immediate liquidity.

Why would anyone put money in a money market for zero yield when you're taking on credit risk, with or without liquidity restrictions?  They are paying you 0% to lend money to overleveraged European banks right before a possible Greek default!  What kind of idiot would sign up for that?

Dump your money market funds and go to FDIC-insured savings accounts and CDs.

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