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Investment Company Institute CEO Paul Stevens on why proposed SEC rules may put many money market funds out of business.
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In the coming weeks the Securities and Exchange Commission which as you know where the government agency.
-- unveil a two part plan which it claims will stabilize.
The two point seven trillion dollar money -- market that's a money market mutual fund market.
The plan has many outspoken critics like my next guest who fears the government may put money market funds out of business all together.
Stevens is the president and CEO of the Investment Company Institute.
Paul thanks so much for coming in because I think this is of critical importance to investors out there there's hardly anybody watches our network who would not have a money market fund.
You say though the government's about to make a big mistake why.
Well.
What what's it is at stake is enormous you're correct and what there appear to be preparing to propose a new rules.
Is a rule that will force many of the providers of money funds out of this business altogether.
And likely leave those who remain with a product that no 111 best and and no intermediary will want to provide to investors.
Alright well let's talk a little bit about this product which so many people have in their portfolio it's really place to park money.
Doesn't have a big return right now.
The basically it's a two point seven trillion dollar industry don't wanna show you the number of money market funds out there take a look at these numbers -- this is total assets as I said two point seven trillion.
And 632.
Funds out there to -- big category.
And of course -- people rely on this debt as a place to sort of stashing money usually know how to -- invested or what they're gonna do with -- One of the suggestions from the federal government is that you guys lose -- breaking the buck the whole.
Dollar dollar asset value that is an -- so attractive to investors.
It's like a government guarantee it is not a government guarantee but is attracted so many people to put their money in these funds.
What will happen if they rip this away.
That -- investors will lose one of the most important cash management tools that's ever been developed for them.
If you think historically about these funds they had their inception at a time.
During the Carter administration.
When there was rampant inflation.
They couldn't an investor could not get a rate nearly equivalent to the current money market rate or -- rate close to the inflation rate to a bank.
This allowed investors to.
Manage their cash and such a way as to avoid inflation.
And to get access to money market instruments that they couldn't do on them on their own and to give you an idea what that's meant.
During the life of money market funds we estimate that perhaps as much as.
A quarter of a trillion dollars in additional yield has been provided to investors over and above what they -- -- -- in a bank account.
I wish that I went -- -- -- now because.
Like a lot of savings instruments the returns on these products are not high right now that doesn't mean they don't have value.
But they're not paying 5% like they were at the top of the market let me get you to another issue I really -- -- -- address here Paul September oh wait you remember this Lehman fails.
And a very large money market fund goes bust panic in the market everybody starts pulling their money out.
This is what the government's trying to prevent.
Isn't that a good idea to prevent that from happening again.
Well it's sort of a selective memory here.
Cast your mind back to the fall of 2008.
And major financial institutions were failing throughout our nation and abroad.
And of course it had an impact on money funds in fact it had an impact on the entire short term fixed income market that just simply froze up.
And what the government has done is to develop special rules for money market mutual funds but you don't hear any conversation about all the rest of the cash market.
What we fear is that.
I'm Paul Volcker.
And certain.
Bank regulators who have never like these products and would prefer that people.
-- required to remain within the banking system.
Now wanna do what they couldn't do forty years ago which is to get rid of them well and to use of the events of fall 2008 as a product and upon which -- I don't think that would be that would be very unfortunate.
This is obviously a discussion it's gonna continue for many days.
Thanks for coming on in talking to us about it I think it's very important and I know a lot of people out there are asking questions what's gonna happen -- my money market fund thank you sir.
Thank you.
