Monday, January 4, 2010

Bank Runs May Now Become Illegal

In addition to the current administration proposal to authorize "Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes", note the more chilling reaction to Huffington's Move Your Money campaign:

New regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to...[change] the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets."

The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen.

Bank runs have become illegal.

"This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law."


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