Bailout mania continues! The latest news comes from MarketWatch, which reports that the Treasury will bail out any money market fund that breaks the buck. I posted on another fund that broke the buck yesterday. Since then, another fund from Putnam Investments was faced with massive withdrawals and shut down.
The Treasury's plan makes available as much as $50 billion to "insure any publicly offered money market fund, both retail and institutional, that pays a fee" will not trade at a per share price below $1. This announcement happened after Putnam liquidated its Prime Money Market Fund due to "significant redemption pressure."
Why did the Treasury decide to do this? It looks like the notion that money market funds are not safe has contributed to the freezing up of global credit markets -- that is, banks don't want to lend to each other or to anyone else. As the Treasury said, these fears "have exacerbated global financial market turmoil and caused severe liquidity strains in world markets." As a money market fund investor, this news provides some comfort, although I am not sure it will help unfreeze global credit markets.
Money market funds have $3.4 trillion in them -- so will $50 billion, a mere 1.5%, be enough? Meanwhile, the total cost of the bailouts is now approaching $1.6 trillion ($800 billion from Lou Dobbs plus the $500 billion RTC II plus yesterday's $300 billion Fed action to prop up markets plus the $50 billion money market bailout).
That is a lot of taxpayer loot to bail out Wall Street's "mistakes."