Last year I brought you a quick synopsis of the Treasury Temporary Guarantee Program for Money Market Funds. In this piece “G-U-A-R-A-N-T-E-E: Find out what it Means to Me” I mentioned that, upon closer examination, the perceived benefits of the program were a bit wanting as expenses related to participation by the fund managers were being passed directly to investors. What’s worse — all new contributions to money market funds were excluded from the program.
I promised to revisit the topic at a later date with follow-up information from the Treasury Department. I have completed the latest research and I have some new findings.
First, and perhaps most unexpectedly, the Treasury Department returned my call within 20 minutes and a cheerful representative answered all of my questions. This individual wasn’t cleared to speak to the press (not that my shop is Newsweek) so I will forego the details of the word-for-word responses and will instead paraphrase the exchange. While I am taking liberties, I will also edit out any of my awkward pauses and will reinvent my questions so that I appear both knowledgeable and pithy. You have been warned.
Treasury Dept: Hi, it’s Joe (not his real name) from the Treasury Department. I got your message and wanted to call you back with some of the answers you were looking for.
Me: That was quick.
Treasury Dept: Was that a question?
Me: Never doubted you (not my real thought). Yes, I was primarily wondering what you’re going to do with all of the proceeds you’ve received from funds that have participated in the program?
Treasury Dept: (pause) Huh. No one else has asked that question.
Me: You’re receiving hundreds of millions…
Treasury Dept: …probably billions
Me: Ok, billions in proceeds from the fees required to participate in the program and no one has asked what will become of the money?
Treasury Dept: No.
Me: So where will these billions go?
Treasury Dept: Back to the Exchange Stabilization Fund.
Me: Have you had to use any of the funds to shore up a troubled money market fund?
Treasury Dept: (laughing) No, you would’ve heard about that.
Me: So all of this money, which has essentially taken the form of extra fees on money market investors, is simply going to go back to this somewhat obscure fund and that will be that?
Treasury Dept: Yes. That’s right.
Me: Does it give anyone over there pause that investors have paid the freight for this guarantee and these funds will now simply disappear into the government’s coffers?
Treasury Dept: I think you need to think of it in the context of insurance. This program kept a run on money market funds from taking place.
Me: Unlike insurance, the program only covered the past – not the present and certainly not the future.
Treasury Dept: True.
Me: And, unlike insurance, the rate required for coverage was an arbitrary figure that, in light of the fact that none of the money market funds needed the money for support, was probably too high.
Treasury Dept: I don’t know that I’d say it was too high. The program worked.
Me: It definitely worked for the Exchange Stabilization Fund.
Treasury Dept: (no response)
Me: I suppose one benefit of the program could be the fact that all funds participating in it had to reveal how far off the $1 NAV they were when they applied? Also, I know that quite a few of the funds heavily invested in treasuries and agencies decided to end their participation when they thought it was overkill. Do you have any statistics regarding what you found when you examined the health of the funds that applied and how many funds declined to participate?
Treasury Dept: No. I don’t believe we have any statistics in those areas.
With this my discourse with our government ended, for now. The program and its non-existent statistics will come to what appears to be a sleepy end this September, and all of this will soon be but a foggy memory. Well, except for the manager of the Exchange Stabilization Fund who has received a considerable early Christmas present.
*Originally published January, 2009.