August 7, 2013
Elizabeth M. Murphy
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Dear Elizabeth Murphy:
I am writing to express my thoughts on the actions of taking away the stable $1 NAV of money market funds. It seems to me, by doing this will allow for a system that may encourage money market funds to create an NAV that is greater than $1 by essentially taking on greater risk not less.
Image, an investor that sees his money market fund not only provide a better yield than other short term instruments but also has an NAV that is rising. Will a new level of research be given to money market funds that are all competing on their NAV and yield? This seems to spell disaster for the small less informed investor.
On top of this, money markets are owned by the investor. They cannot be included in any type of bankruptcy by the manager…kind of like AIG. These are ultimately much safer than the money in a bank that requires FDIC insurance due to the fact that all assets in a bank have been lent out and are subject to the creditor of the bank in the case of insolvency. Think about it, there is no FDIC insurance on these investments because they don't need it. During the 2008 credit crisis the yield on the 1 month treasury went negative. This is because lots of money was fleeing from the banks to the treasury market because of the protection afforded. This was an amazing event that certainly taught me a lot. As a small investor, money markets give smaill investors and institutions a place to go in the case of another crisis which is bound to happen given how leverage is
subsidized within the system and should be recognized for this.
FDIC insurance on bank deposits allow the covered institution to take more risk on these dollars due to the FDIC backstop. Think about if you were taking deposits from investors, would you take the same amount of risk with these dollars if there wasn't a safeguard like FDIC insurance to fall back on. If the bank employee makes a bad decision, the tax payers come in to save the day. The bank changes its name and the employee continues
to have a job. Where is no consequence of this bad risk taking. The
only loser is the shareholders of the bank and the tax payer which is hardly a reason for employees not to take the risk. The employee takes the risk to increase their income. Another loser is the fact that the FDIC insurance becomes more expensive for the banks which most likely will cause them to take even more risk to make up the difference.
At the end of the day, tax revenue from growth is what matters in this country. Changing laws to help bank deposits compete with money markets will do much more harm to the financial markets than good. The capital markets have spoken, leave money markets alone.
I appreciate you time.