Back in 2014 the SEC passed a rule that now goes into effect on Oct. 14 where investors and pension funds who do not have their money in a security can summarily have their cash reserves moved into U.S. Treasuries rather than money market funds.
While designating this mechanism to only be used during extreme 'adverse conditions', the fact that the global financial and banking systems are teetering on another 'Lehman Moment' means that the government could co-opt your money at any time, and is a backdoor way into moving your retirement and pension assets into Treasury debt instruments to help fund the government.
The big day has finally arrived: starting today, as previewed repeatedly over the summer, the SEC's 2a-7 money fund reform adopted in 2014 officially require many prime money market mutual funds (those that invest in non-government issued assets such as short-term corporate and municipal debt) to float their net asset value. More importantly, these prime MMFs are allowed to delay client withdrawals under adverse market conditions.
The rule aim to prevent the sort of chaos that hit the money market after Lehman Brothers Holdings Inc.’s 2008 bankruptcy, which helped spark the financial crisis. The goal is to give investors a way to monitor a fund’s health by tracking its fluctuating net asset value, and to contain the fallout that could be caused by many investors cashing out at once, the SEC wrote in the final rules.
As as result, many Prime MMFs are and have been converting their assets to government funds, not buying CDs anymore and moving into Treasurys and agencies. As the chart below shows, nearly $1 trillion in assets have rotated out of prime money markets into government funds, as a result sending Libor rates through the roof, to the highest level since the financial crisis, with consequences that have yet to be determined. - Zerohedge
Take the case of Simon Gore, treasurer of budget carrier Spirit Airlines, who has had a relatively simple job over the past several years when he took tens of millions of dollars of company cash and parked it in money-market funds. Gore told the WSJ he has moved money out of some funds and is considering his options for depositing the more than $1 billion of cash and investments on Spirit’s balance sheet.
Gore had previously put almost all of Spirit’s cash in prime money-market funds. Now, he has shifted most of it to money funds that invest in debt issued by the federal government or agencies such as Fannie Mae and Freddie Mac, which aren’t affected by the new rules. He said the prospect of a floating net asset value - which also means client withdrawals can be delayed - caused him to think twice about prime funds. Besides facing the risk of losing money under the new rules, companies would have to record changes in the value of their cash, creating accounting headaches.
How much longer can you trust your future to Wall Street or elected officials who have proven themselves to be some of the most fiscally irresponsible entities in history?