Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"Mary Schapiro may not know it, but her money-market crusade asks one of the financial market’s great questions."
She absolutely does "know it", and this question absolutely does need to be asked and answered. This article is right on.
It's all well and good to say something like "if investors want safety, they should use a FDIC insured bank account", but this completely ignores the problem of moving assets in and out of tax-sheltered mutual funds. If, because of unacceptable levels of market turmoil, someone wants to move assets from an equity fund or a bond fund into relatively stable cash, where is that money supposed to go?
If we can't move mutual fund assets to a "safe-haven", then the entire concept of mutual funds comes under extreme stress.
I agree with Ms Shapiro, with respect to taxpayer exposure. Perhaps mutual funds need to realize that the MM funds cannot be looked at in isolation, but as an essential component of their entire fund operation, and spread the MM fund safety/insurance costs across the entire fund industry.
If some withdrawal restrictions during periods of market turmoil are required as proposed, it seems to me that's a reasonable price to pay for safety. I need to know that the MM funds are relatively safe, even if I can't get at the entire balance on a moment's notice. Something's got to give here. It's called "compromise", and I do understand that that's become a very dirty word in some quarters.
For those investors who prefer total mobility to safety, perhaps mutual fund families could offer both: a "safe" version, with lower return and some withdrawal restrictions, and a "take your chances" version, with higher return, no restrictions, and absolutely no attempt to support the "sacred $1.00" share value. "You can withdraw 100% of your account at any time you want, but be advised that 100% of your account may be only 95% of what you deposited there!"
Comments
She absolutely does "know it", and this question absolutely does need to be asked and answered. This article is right on.
It's all well and good to say something like "if investors want safety, they should use a FDIC insured bank account", but this completely ignores the problem of moving assets in and out of tax-sheltered mutual funds. If, because of unacceptable levels of market turmoil, someone wants to move assets from an equity fund or a bond fund into relatively stable cash, where is that money supposed to go?
If we can't move mutual fund assets to a "safe-haven", then the entire concept of mutual funds comes under extreme stress.
I agree with Ms Shapiro, with respect to taxpayer exposure. Perhaps mutual funds need to realize that the MM funds cannot be looked at in isolation, but as an essential component of their entire fund operation, and spread the MM fund safety/insurance costs across the entire fund industry.
If some withdrawal restrictions during periods of market turmoil are required as proposed, it seems to me that's a reasonable price to pay for safety. I need to know that the MM funds are relatively safe, even if I can't get at the entire balance on a moment's notice. Something's got to give here. It's called "compromise", and I do understand that that's become a very dirty word in some quarters.
For those investors who prefer total mobility to safety, perhaps mutual fund families could offer both: a "safe" version, with lower return and some withdrawal restrictions, and a "take your chances" version, with higher return, no restrictions, and absolutely no attempt to support the "sacred $1.00" share value. "You can withdraw 100% of your account at any time you want, but be advised that 100% of your account may be only 95% of what you deposited there!"