SEC Protecting Corporatocracy More Than People Of The US

SEC decided to abandon forcing money market funds, places where a lot of what is supposed to be our cash holdings in our retirements, from holding only the very high grade debt instruments after companies protested that the move would hurt the companies. AKA it would not allow them to dump their trash on the retirements of middle-class Americans who are forced in their 401K's and IRA's to put their money into that trash. I do not understand the logic behind forcing people to put their money into the stock market or money markets and not giving any other option such as buying physical gold in your retirement, which at this point is the best asset for a young to middle-aged American to hold in his/her retirement as well as for older people to diversify a significant amount into. Worst of all if you are afraid of the stock and bond markets crashing and you want to do the prudent thing by moving into cash, you are again forced into the money market funds that invest in Lehman's commercial paper or Goldman's or GE's, which are all crap. This should be unlawful as it is hazardous to the people of this country. Apparently, the case of the Reserve Fund breaking the dollar after commercial paper losses on Lehman among others was not enough for the SEC to try and protect the people of this country. The Reserve Fund, by the way, is still not giving all of the money back to the rightful owners of it after two years. People who ran away from the markets thinking they were moving practically into cash have been fooled. This is nothing but a Ponzi scheme. People should have the option to hold cash and by cash I mean CASH!!!! Not toilet paper. There needs to be a lot of changes in the retirement planning in this country, the most important being letting people hold cash and gold and other precious metals in their 401Ks and IRAs. In a democracy it makes no sense to be forced to hold certain securities that a bunch of bankers decide with their own interest in mind rather than the retirees.

Here is the article from Bloomberg:

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SEC Said to Drop Plan to Bar Money Funds From Lower-Rated Debt

By Jesse Westbrook and Christopher Condon

Jan. 27 (Bloomberg) -- U.S. securities regulators are abandoning a plan to ban money-market mutual funds from buying anything other than the most highly rated debt after companies said the requirement would hurt the commercial-paper market, three people familiar with the matter said.

The Securities and Exchange Commission will vote today to cut the so-called tier two securities money funds can buy, instead of barring purchases as proposed in June, said the people, who declined to be identified because the agency’s plans aren’t public. Current SEC rules allow funds to invest up to 5 percent of their assets in debt that carries the second-highest rating from Moody’s Investors Service or Standard & Poor’s.

The SEC recommended new rules six months ago to increase the liquidity and stability of money-market funds after the collapse of the $62.5 billion Reserve Primary Fund in 2008 raised concerns about whether the industry could meet investor redemptions during financial panics. The agency changed its proposal after the U.S. Chamber of Commerce, Time Warner Inc. and Comcast Corp. said in comment letters that the ban on lower- rated assets would make it harder for companies to fund payrolls and other short-term expenses through sales of commercial paper.

“They are really fighting and clawing over inches,” said Peter G. Crane, president of Westborough, Massachusetts-based Crane Data LLC, which tracks money-market funds. “The vast majority of the changes that the SEC proposed and likely will adopt, most of the industry has been adhering to already.”

Short Notice

Money-market funds are attractive because they let investors deposit and withdraw money on short notice while generating better returns than bank accounts. The $3.24 trillion industry is among the biggest buyers of commercial paper, short- term securities that companies sell to meet their funding needs.

The SEC has also scrapped a June proposal that would have imposed different requirements on money-market funds depending on whether they cater to corporate investors or individuals, the people said. As a result, all money-market funds will face a more stringent requirement that they be able to sell at least 10 percent of their assets in one day and 30 percent within a week, the people said. SEC spokesman John Nester didn’t return a call seeking comment.

Asset managers, in comments to the SEC, argued the distinction between institutional and retail funds was impractical because those catering to corporations and pension funds often hold assets from individual investors through banks or brokerages.

“That was the most difficult proposal as to how you can” implement it, Debbie Cunningham, head of taxable money-market funds at Pittsburgh-based Federated Investors Inc., said in an interview.

Net Asset Value

Money-market funds maintain a stable net asset value of $1 per share, giving investors confidence they won’t lose money. SEC officials have said the $1 share price may encourage flight at the first sign of trouble, because investors who pull money first can escape with their cash and saddle others with debt.

The President’s Working Group on Financial Markets, whose members include the leaders of the SEC and Treasury Department, is weighing the idea of requiring money funds to float their share prices. Industry groups including the Washington-based Investment Company Institute oppose a floating share price, and the SEC hasn’t proposed such a step.

Concern that regulators may favor a so-called floating net asset value heightened in the past week after President Barack Obama embraced Paul Volcker’s plan to ban proprietary trading by banks, signaling the former Federal Reserve chairman’s growing clout in policy debates, Crane said. Volcker has been a critic of the funds, saying they undermine the strength of the U.S. financial system.

‘Radical Change’

The SEC rules “are seen as a necessary evil because you have to do something,” Crane said. “People are more concerned about the President’s Working Group and the re-emergence of Paul Volcker. There’s still a slim chance of radical change.”

As the SEC moves to implement reforms, money-market funds have been pursuing their own changes.

Money managers including Boston-based Fidelity Investments and Vanguard Group Inc. in Valley Forge, Pennsylvania, have worked for months on a proposed Liquidity Exchange Bank that would provide emergency cash to funds in a crisis. According to preliminary plans, the bank could buy securities at face value from funds needing cash to meet withdrawal requests. It could also apply for emergency support from the Fed’s discount window.

To contact the reporters on this story: Jesse Westbrook in Washington atjwestbrook1@bloomberg.net; Christopher Condon in Boston atccondon4@bloomberg.net

Last Updated: January 27, 2010 05:55 EST
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