2012-08-10 — cnbc.com
Acting without any explicit Congressional authority, the U.S. Treasury guaranteed in excess of $2.4 trillion of money market funds after the giant Reserve Primary Fund "broke the buck" following the bankruptcy of Lehman Brothers. The program, which ended on Sept. 18, 2009, seems to have successfully prevented a panicked run by money-market fund investors.
Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, recently obtained data about the program from the Treasury, through a Freedom of Information Act request.
The data from the Treasury show that taxpayers were backing in excess of $2.4 trillion through the mutual fund program. Hundreds of funds participated in the program, amounting to almost 99 percent of the total money-market mutual fund assets.
Despite the enormous size of the guarantees, the Treasury collected only $1.2 billion in fees from the participating funds. By Wilson's calculation, most participating funds paid just 0.04 percent, or 4 basis points, for a year's worth of insurance.
Treasury used $50 billion from an account set aside for exchange rate stabilization to fund the program. Those funds can be spent at the Treasury Secretary's discretion--even when it takes a pretty creative logical leap to connect the expenditures to exchange rates.
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