Institutions Scream Ahead Of Imminent Death Of Money Markets

Tyler Durden's picture

Previously we explained on at least two occasions (here and here) why the upcoming death of the US money market industry is not greatly exaggerated: quite simply, as we wrote back in 2010, the Group of 30, or the shadow group that truly runs the world (see latest members) decided some time ago that it would rather take the "inert" $2.6 trillion held in money markets, and not used to boost the fractional reserve multiplier, and instead have it allocated to such more interesting markets as bonds and stocks. As a reminder, Europe already achieved this last month when it cut its deposit rate to zero leading to a sequential shuttering of money market funds. The Fed, however, has to be far more careful to not impair the overnight General Collateral repo market which as everyone who understands the nuances of Shadow Banking knows is where all the bodies are buried, and as such has been far more careful in implementing such a shotgun approach. Instead, Ben, the SEC, and the Group of 30 have adopted a far more surgical approach to destroying money markets: they want investors themselves to pull their money by implementing such terminally destructive measures as floating NAV, redemption restrictions and capital requirements, which will achieve one thing - get the end user to pull their money from MM and put the cash either into either deposits, where it can then proceed to be "fractionally reserved" into the banking system, or to boost AMZN's 250+ P/E. After all the number under observation is not modest: at $2.6 trillion, this is almost 20% of the market cap of the US stock market. So it was only a matter of time before major money market institutions, in this case Federated first, but soon everyone else, starts screaming and warning that money markets are about to die (which they are). 

Of course, at the end of the day, whatever the Group of 30 wants, the Group of 30 gets: goodbye money market funds (more here). It was nice knowing you.

Dear Financial Professional,

 

Over the past 40 years, money market funds have become a staple of the US economy, used by millions of investors, businesses, state/local governments and non-profit organizations as a stable, efficient and liquid cash management vehicle.  Unfortunately, if Securities and Exchange Commission Chairman Schapiro has her way, that may not be the case for much longer, as the SEC is poised to consider a set of proposals that would be the death knell for money market funds.

 

Federated has been very active in the battle to save money market funds and I am pleased to report that we are not alone.  In addition to a host of financial services companies, hundreds of corporations, business groups, state/local governments and non-profits have written to the SEC to express their support for money market funds and to oppose Chairman Schapiro’s proposals.

 

There are three proposals being promoted by Chairman Schapiro and other Washington regulators – a floating NAV, redemption restrictions and capital requirements – each of which would destroy the very foundations that make money market funds so effective and popular. 

  • Replacing the stable $1.00 net asset value, which has been the hallmark of money funds, with a floating rate NAV would create accounting nightmares for all users, requiring the tracking and reporting of fractional changes in share price each time shares are bought or sold. 
  • Instituting redemption restrictions would prohibit money fund users from having full access to their investments when they want it or need it.  Such a freeze would also cripple sweep accounts, check-writing and a number of others features that money market fund users depend on.
  • Requiring money market funds to maintain “capital buffers” or reserves would further limit the attractiveness of money market funds, particularly in the current low interest rate environment.

 

It is crunch time. The SEC is getting ready for a public meeting on these proposals.  We need the help of everyone who knows the benefits of money market funds and their importance to the economy.  Federated has developed a website that  provides you the ability to contact the SEC and other officials to let your voice be heard in support of money market funds.  You can visit www.savemoneymarketfunds.org to tell the Washington regulators not to destroy money market funds.

 

I truly appreciate our relationship and your consideration of helping Federated and money fund users everywhere in this important matter.

 

Sincerely,

 

J. Christopher Donahue
President and Chief Executive Officer
Federated Investors, Inc.

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Comay Mierda's picture

just wait til all redemptions, of any asset, are restricted

change you can believe in

TruthInSunshine's picture

The Ben Bernank & Chuck "F*ck Flyover Country 'Cuz I Represent Wall Street Yo" Schumer say "support our efforts and be Patriotic; buy equities [near the top of the glorious mountain] in the latest hot-beef injected bubble to support Liberty!"

Pladizow's picture

Fuck em - Let the MMF die!

All that money rushes to bank deposits and through the magic of Fractional Reserve Banking, Gold soars!
The Big Ching-aso's picture

 

 

I'd like 2 invest in a Marijuana Market Fund where at least I'm guaranteed a high return.

The Big Ching-aso's picture

 

 

Ya, but at least you're left with roaches.

fuu's picture

There is never just one roach.

The Big Ching-aso's picture

 

 

You must be very familiar with Malibu parties.

Thomas's picture

You cannot force funds out of money markets into stocks because, to state the obvious, the sellers will simply return it to the money markets. You can, however, force it into deposit accounts. I am stunned at how many years the "you sell-I buy" mantra needs to persist before people get the idea that money is not consumed buying stocks (although it sure feels like it.)

zaphod's picture

Shows you how dumb bankers are. They actually believe the only 2 things people could do with their money after pulling it from MM funds is a) Stocks or b) deposits.

They'll probably be honestly suprised when one day people go for options c) gold and take their money out of the system

francis_sawyer's picture

Or buy AMMO with it... Like, um... NOAA

Apparently it's real important for the weatrhermen at the Weather Service to be heavily armed...

~~~

http://pprnnews.prepperpodcast.com/noaa-requests-ammunition-weather-service/#ixzz23W2SJ9SV

Cthonic's picture

Depends on the type of "Weathermen". You see where TSA ordered 700lbs of RDX?

http://goo.gl/T5QIU

francis_sawyer's picture

Oh those wacky weathermen... Always lookin' for the PERFECT STORM... As for the 'TSA'... Words fail me in this moment... RDX? Really?

Looks to me like a private militia is being constructed by spreading the expenditures for this shit across multiple agencies (which will, 'surprisingly', go missing from the various storage facilities at some point)...

BRoquet100's picture

And there was another article there: http://pprnnews.prepperpodcast.com/explosives-awardee-announced-firm-former-tsa-head/#ixzz23XI2hVde that says the former head of Marylan'd TSA is the president of the firm that won the award to provide the explosives!

Cthonic's picture

Oh so there is competition in the GIC (goon industrial complex); I thought the Chertoff Group had it all wrapped up.

hungrydweller's picture

I took all of my MMF deposits and bank CDs and converted to gold, bullets and food several years ago.  Hell, if I am earning a pittance at least I can sleep better knowing I am keeping pace with true inflation.

Not rocket science.

aerojet's picture

I have a lot of cash in MM funds all over the place.  I'm getting 0% interest on all of them.  I might as well move into metals since I'm looking for return of capital not return on capital at this point.  Just a few years ago MM funds were paying 6%. 

JR's picture

The bankers have reached the summit. Restriction on the use and withdrawal of cash is ultimate control. 

It offers the Cabal the final benefit of their Federal Reserve System: “There can never be another run on the banks, because it is now illegal to demand currency.” – G. Edward Griffin

Global totalitarianism! high-tech feudalism!

fuu's picture

30 is most of a deck of cards, we just need to come up with another 22 names to complete the financial terrorists deck.

i-dog's picture

Shouldn't be too hard.

BTW, at least 24 of the 'Group of 30' are Jews or Catholics - mainly Ashkenazim and Jesuits...ie. the Khazarian Klique at the Kollapse Kontrols!!  Just sayin'....

falak pema's picture

you are playing the same violin as the man from joyful; like the man from Uncle. Its all about KKK...khazar konspiracy kabal, sounds like the land of those other debased men, the Tatars; the bogey men of the 17th century, remnants of Genghis's violent legacy. Every age has its bogey man and Catharsis sings their demise in 'god wills it', in after the event holocaust tears. Revised into 'false holocaust' to appease populist guilt. ' We never killed the APACHE, THEY KILLED THEMSELVES!' History repeats since the fall of Troy and the rape of Trojan women. Oh, but we never RAPED them intentionally; it all happened as manifest destiny, KISMET! Who can fight his destiny. They were destined to die as people who did not deserve to survive the Deluge and be reuscitated in Noah's arc!

Its coming that block buster! With Hollywood's best and brightest! Russel Crowe! 

Anything to revive the myth of superior man, the chosen few like the happy few of Oligarchy strain!  Democracy's bain and simple man's pain in the ass! Play on and let the gods laff and laff as the hills reverberate at his hubris. 

Not that I love the jesuits or the jews; but I don't make bogey men of them. I let History do it for me, based on fact not on superstition and prejudiced extrapolation. 

LongSoupLine's picture

very easy...just add the remaining top tiers of the TBTF's and CB's.

Nadaclue's picture

Leave some room for Wolfawitz, Kissinger, Soros, Buffett, Gates, Dimon, Vamp Squid estrordinare and a few other notables.

DeadFred's picture

You're just adding names to the top management list. The real players are the guys these thirty+ names get their orders from. The real "THEY" are the owners, not the CEOs. Pure conjecture who they are but you have to know it's not this thirty names.

vinu02's picture

Few more weaks before we seen another stock market crash.

http://goo.gl/fA1kV

disabledvet's picture

Eh. Big woopty doo. Sure..."sucks to be Federated." maybe if they put out an interest rate that reflected the massive risks they take everyday. Anywho "the bailouts of 2008 were all about the Commercial Paper market" and not money market funds...per se.

Confundido's picture

Very interesting....Back in July 2nd, this guy warned about the importance of this. Read: "Why the repo market will take us to the end of this crisis":  http://sibileau.com/martin/2012/07/02/why-the-repo-market-will-take-us-to-the-end-of-this-crisis/

and subsequent revision, 2 weeks ago, if UST floating rate notes are back:

http://sibileau.com/martin/2012/08/06/leverage-floating-rate-notes-and-high-frequency-trading/

yogibear's picture

Bernanke and the Fed banksters are trying to force everyone onto risky assets. First money markets, next savings, then 401Ks/IRAs.

Grabbing everything they can.

Cognitive Dissonance's picture

You'll have to pry my money market fund from my cold dead hands.

Wait.........let me rephrase that.

slaughterer's picture

<< go short ES today

<< wait until shorting ES

JR's picture

Russ, you report:

"The lack of income has kept older people in the labor market longer at the expense of  younger people. For households this is not a zero sum game, it is a negative sum game.  WSJ reports insurers are offsetting income lose with higher premiums.   

"In 2011, life insurers invested 40% of their capital in corporate and foreign bonds,. 'High quality corporations financing at 2% yields is clearly not helpful to insurance companies struggling to meet investment targets,' said Thomas Mercein, global head of debt capital markets at Credit Suisse. Property and casualty insurers have moved to protect profits hit by lower yields on their investments by charging their customers more, said Michael Siegel, head of insurer asset management at Goldman Sachs Asset Management. The cost of home and renters insurance rose 3.2% in June over the previous year compared to a 1.5% increase in 2011, according to the Bureau of Labor Statistics."

I would add that open border entry of Third World labor into labor markets such as California's has been at the expense of young, student-age people. Most fast food businesses in my area, except In-n-Out Burger and Pizza My Heart, employ no young white people. None! One local McDonald's recently displayed a sign: Now Hiring: Must Speak Spanish; with others, it's a tacit agreement.

Great article, by the way.

wcvarones's picture

Money markets are for suckers in ZIRP World.   Why take credit risk for zero yield?

Buy T-bills or FDIC-insured CDs or savings accounts.

 

http://www.wcvarones.com/2012/02/sec-tries-to-fix-unfixable-money.html

Things that go bump's picture

My resources, such as they are, do not go into their system.  My income, such as it is, flows in and out of a debit card the same day though they still manage to squeeze a few bucks out of me, and believe me I now make very little and spend less.  I pay my bills in cash.  I practice civil disobedience every single day and expose myself to the possibility of being arrested.  Sooner or later I expect that I will be arrested.  And if and when they arrest me, it is going to cost them. No plea deals for me.  No house arrest with an ankle bracelet.  They can house me and feed me and clothe me and pay my medical expenses.  They can hire a lawyer for me and pay a judge and a prosecuter and a court reporter and bailiffs and 12 people to sit through a trial and they will never get a lick of work out of me.  This much I can do.  I am divorced.  My children are grown.  I have no hostages to fortune.  Vive la resistance. 

ZeroAvatar's picture

Man, Things that go bump, I can feel ya, bro.  But:  believe me, you DON'T want to spend time in the jail system.  The uneducated, ne'er do well, low-life diversity in those places will make you go insane. 

 

Stay free.  Don't let THEM win.  We need you out here, brother.

Things that go bump's picture

Thanks, but no mas.  

"First they ignore you.  Then they laugh at you.  Then they fight you.  Then you win."  Mohandas K. Ghandi.

Nobody For President's picture

True dat Things that go bump, listen to zero a - I spent a little time in the joint - meditation practice helps (I'm a Buddhist - a bad Buddhist, but a Buddhist neverthelessl), and the joint is a mind-deadening place. Prepare if you must, but best to stay clear and continue the fight outside.

Things that go bump's picture

You do understand the concept of civil disobedience and what it entails don't you?  It was widely practiced during the civil rights era of the 60s.  

AGORACOM's picture

Add in the repercussions of the Sentinel decision (this is a must read) and the powers that be may inadvertantly be driving citizens to finally put their money into gold.

As I've said before  .... move to Canada.

George ... The Greek ... From Canada

Whiner's picture

Oh my! Who will buy closing MM's bonds? Oh, who else, the CBs and FOMC et al. Not Bill Gross. All will be well sheeple. What's on Dancing With The Zombies tonight?

DeadFred's picture

Season 15 with its best-of-the-best cast doesn't start until its two hour premier on September 24. How can we wait until then? Will Apolo dominate once again? My heart is aflutter!

Dr. Engali's picture

When the time comes we can take that poster of the group of 30 and hang it in every Post office location and offer a reward for the world's most dangerous criminals. I'm sure we could add a few names and make a deck of cards.

Things that go bump's picture

Post office will be gone by that time.

mick_richfield's picture

We will repurpose the buildings and call them...

...Well, I guess we'll just call them Post Offices.

Or maybe calll them UPS Offices.

ParkAveFlasher's picture

I just advised my mother-in-law to pull $25,000 out of her BOA money market account, which she then deposited [temporarily] to checking.  I suppose the next step is into either cash or bullion.  Or perhaps, wait for the next massive-steaming-Black-Swan-shitpile to hit equities dead center, and then BTFD.  Thoughts?

Dr. Engali's picture

Well anybody who has money with BAC is nuts. They transferred 75 trillion dollars worth of derivatives over tho the bank holding side. That means if something happens your MIL is up shit creek, because her money will be vaporized. You'd be better off in cash if you want to be liquid. I'd be a little wary about waiting for the big deflationary crash before purchasing any PMs. If people start scrambling for PM's they may not be there.