John Waggoner argues that the money fund industry needs to take their medicine and accept the SEC's regulatory efforts, especially after all 12 Fed presidents recommended the proposed rules.
Waggoner argues that the scariest part of the Reserve Fund's
collapse was its effect on the market for short-term corporate financing, especially commercial paper. Waggoner spoke to Marcin Kacperczyck
, professor of finance at Imperial College
in London, whom he quotes as saying, "People think of companies raising money through long-term debt or equity, but in fact, 50 percent of all corporate financing has historically been through short-term debt. Lots of financial services companies rely on commercial paper quite a lot."
Commercial paper outstanding fell by 15 percent a month after the Reserve Primary Fund
collapse five years ago, Waggoner writes, and shrunk 30 percent in its wake, in part because money funds reduced their holdings substantially.
Waggoner argues that it's a bit harsh to blame money funds in general for the Reserve Fund's collapse because the fund didn't have deep pocket to rescue itself as other funds did. Yet he says the industry overplays the dangers of reform, writing:
The fund industry seems to think that eliminating the constant $1 share price would destroy the industry. That's a bit hard to swallow: There's a $2.6 trillion cooling its heels in money funds today, and it has earned virtually no money for half a decade…As an investor, a floating share price could mean that your fund's share price could vary by a cent or two in times of stress. That's far better than collapsing the commercial paper market and endangering the economy.
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