Treasury Ends Safety Net For Money Markets

09.18.09 | FL News Team

A year ago this week, Americans who thought money markets were a safe, conservative investment got a nasty surprise. One of the largest money market funds announced that it would do something unprecedented and tell investors that one dollar no longer equaled one dollar. The Reserve Primary Fund had been bloodied by the collapse of the Lehman Brothers brokerage and offered investors only 97-cents on the dollar.

 

Called "breaking the buck," the raw deal meant investors stood to lose money on what they'd been told was the equivalent of keeping their assets in cash. The U.S. Treasury stepped in and offered to insure all money markets for a year, similar to what it does with regular bank deposits. That year ended Tuesday without any other money market breaking the buck and the Treasury has announced it's ending the guarantee as of today. Taxpayers made a billion dollars on the deal in fees and no investors lost money. And there's more than three-and-a-half trillion dollars held in money markets today, roughly back to where it was a year ago.