Treasury Taps $50B to Insure Money Market Funds

As investor confidence dims, a backing from the government

By Clay Dillow, Newser Staff

Posted Sep 19, 2008 8:14 AM CDT

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Treasury Taps $50B to Insure Money Market Funds — Amid the turmoil in the financial markets, President Bush tried to calm financial fears Thursday, saying the administration is working hard to create solutions in a market fraught with problems. (AP Photo)

The US Treasury moved today to temporarily insure investors against losses on money-market funds, Bloomberg reports. As much as $50 billion from the government’s Exchange Stabilization Fund will be used to back for a year funds that pay to participate in the program. Money-market funds, in which investors normally aren't at risk of losing their principal, are considered one of the safest investments, but confidence in them was shaken this week as the credit crisis widened.

For the first time in 14 years, a fund exposed its investors to losses because of the Lehman Bros. bankruptcy. Nervous Investors yanked a record $89.2 billion out of money market funds Wednesday—2.6% of total assets invested in them. And Putnam Investments closed its $12.3-billion Putnam Prime Money Market Fund, returning all cash to investors but further shaking confidence in the funds.
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