Arnold Kling  

What Could Go Wrong?

Mainstream economists agree th... The Upper Hand Heuristic...

From Bloomberg News.

The Federal Reserve Bank of New York said money-market fund investors should be prohibited from withdrawing all their assets at once as a way to make the $2.5 trillion industry "safer and more fair."

I do not think it is too difficult to come up with a model under which this policy increases, rather than decreases, the frequency and severity of fear-driven withdrawals from these funds. My guess is that it is harder to come up with a model that suggests otherwise.

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COMMENTS (7 to date)
Peter H writes:

I think this would have a much simpler effect: killing the money market mutual fund as an investment vehicle.

Money market funds exist solely to provide highly liquid, highly safe returns. If you kill that liquidity, the product dies. I would expect it to be replaced with, for small investors, Money market savings accounts at FDIC/NCUA insured institutions. Or for large investors, exchange traded bond funds.

yet another david writes:

It's called "financial repression".

Peter St. Onge writes:

I wonder if such a restriction alone would "break the buck" and therefore wipe out the industry.

R Richard Schweitzer writes:

What, pray tell, does "fair" have to do with the functions of money market funds.

Is this another part of the movement to bring all commercial and financial activity under the "Public Utility" rubric?

Glen Smith writes:

Another example of why regulation is about getting the middle class to say "thank you sir, may I have another" while the rich steal the middle's money.

mark writes:

Right. At current interest rates, my mattress will be a perfectly fine substitute for a MMA. And will provide greater financial freedom when I want to take money out, and it's at least as solvent. So where will the next extension of credit come from with rules like this? This kind of reasoning should be called "the Argentina school".

ThomasL writes:

Bank holidays worked so well the first time around, how could they not want to give them another try?

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