The Truth Hurts
columnist: Chuck Angier

Topic: Economics
President Authorizes up to $50 Billion in Guarantees for Money Market Funds

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A Federal insurance program for money market funds is appealing, but its feasibility and authority is questionable

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by Chuck Angier
(libertarian)
Monday, September 22, 2008

In a September 19 press release from the Treasury Department, President Bush authorized Treasury to make available up to $50 billion from the Exchange Stabilization Fund (ESF) to "insure the holdings of any publicly offered eligible money market mutual fund - both retail and institutional - that pays a fee to participate in the program."

The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund ...Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary ..., with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."

The August 2008 brief supplied by the ESF (by law) to Congress showed net assets of only $40 billion including almost $17 billion in US Government Securities.

According to the Wall Street Journal, in just two days"....panicked investors withdrew nearly $130 billion out of the $3.4 trillion money-market fund industry."

In a nutshell, the government has obligated the taxpayers to a $50 billion commitment secured by only $40 billion (or $23 billion maybe?) in assets against a $3.4 trillion behemoth that managed to liquidate $130 billion in just two days, and all under questionable authority.

Angier is self-employed in agri-business and can be contacted at chuckangier@gmail.com

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©2008 Chuck Angier, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Monday, September 22, 2008
Last modified: Monday, September 22, 2008

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