Proposed regulations would harm individual investors, destabilize American financial system
AUSTIN, Texas, Aug. 24, 2012 /PRNewswire-USNewswire/ -- Proposed regulations by the U.S. Securities and Exchange Commission (SEC) on Money Market Mutual Funds (MMF) would have the effect of enriching the Federal Reserve and feeding the relentless borrowing demand of the federal government while harming individual investors and destabilizing the American financial system, according to a report published today by internationally renowned economist Dr. Arthur Laffer.
"Put directly, the regulations proposed for Money Market Mutual Funds do not represent a strengthening of America's financial system," Dr. Laffer said. "On the contrary, the regulations would make the financial system less stable. It is another system the regulators want to save, for these rules represent the ultimate bailout for the Federal Reserve System itself."
"The Money Market Mutual Fund Industry: First Do No Harm," a report published by the Laffer Center for Supply-Side Economics, was released in advance of the U.S. Securities and Exchange Commission's August 29 scheduled vote to publish the proposed regulations for public comment. It is available for free download from the Laffer Center's website, www.LafferCenter.com.
MMFs are open-end mutual funds that provide their investors with money-like assets by acquiring investments such as U.S. Treasury securities, agency securities, repurchase agreements, commercial paper, and bank certificates of deposit. Unlike many other types of investment funds (hedge funds, exchange traded funds, etc.), MMFs only hold low risk, short-term, highly liquid debt instruments purchased in the "money market." MMFs act as intermediaries between investors (i.e. depositors), who want highly liquid investments, and, borrowers who need short-term financing, including corporations, state and local governments, and financial institutions.
"Money Market Mutual Funds play an extremely important role in providing liquidity and stability to the financial system, while at the same time providing real advantages for investors and issuers alike," Dr. Laffer said. "And yet today the Federal Reserve, aided by the Securities and Exchange Commission, has made a top priority of imposing new and destructive regulations on these funds – regulations that many believe would eliminate them as a major tool of global finance."
Dr. Laffer noted that the proposed regulations for the MMF industry would have the immediate effect of shifting funds away from one group of borrowers and directly to the government.
"At a time when the U.S. (and especially the Fed) is in drastic need of additional buyers of government debt, MMFs are where the money is," Dr. Laffer said.
"Those who are proposing further regulations on the MMF industry are betting the entire prosperity of America on the untried and untested ideas of a few who in turn do not bear the consequences of their own actions," Dr. Laffer said. "Ask any one of them if they would put their entire family wealth as a backstop if the Fed fails. From my standpoint, you should never fly in an airplane when the pilot has a parachute and you don't."
An op-ed by Dr. Laffer on the proposed regulations, "Fed Proposal For Money Market Would Hurt Savers," was published in today's edition of Investor's Business Daily.
Dr. Arthur Laffer is founder and chairman of Laffer Associates, an institutional economic research and consulting firm. Laffer was a member of President Ronald Reagan's Economic Policy Advisory Board for both of his terms.
SOURCE The Laffer Center for Supply-Side Economics