September 18, 2009
Fixing the Buck
Posted by William Birdthistle

One year ago this week, the financial crisis took a particularly severe turn for the worse when the Reserve Primary Fund broke the buck, with its net asset value dropping from $1 per share to $0.97 because of the fund's exposure to newly worthless Lehman bonds.  In an attempt to address such problems, the SEC published this June a Proposed Rule (IC-28807) offering "Money Market Fund Reform," which has generated considerable comment.

A particularly trenchant and scholarly analysis of the proposal comes from Professor Jeff Gordon of Columbia Law School, who "proposes a different direction to reform, one that begins with the division between retail and institutional money market funds and that takes account of the different motives and need of the investors in each."  An appreciation of the differences between retail and institutional investors seems critical for the effective oversight of most public funds, including both money market and mutual funds.

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