Money Market Funds: Insurance, Liquidity, and Support

The past two weeks have seen a continuation or worsening of the market conditions that have challenged money market mutual funds (money funds), as well as their sponsors and advisers, over the past year. Among other things, these events have included the bankruptcy of Lehman Brothers, the downgrading of short term securities issued by various financial services companies, a spike in 1-month and 3-month LIBOR, and unprecedented illiquidity in markets for securities that traditionally have been among the deepest and most liquid. The past two weeks also saw the announcement of The Primary Fund, a series of the Reserve Fund, stating that it is unable to maintain a stable $1.00 per share net asset value (NAV), and the announcement by at least one other Money Fund that it will liquidate.

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