Treasury Announces Guaranty Program for Money Market Funds

If you've been totally focused on your Cintiq over the past week, you might not have noticed that the World and American economies have been going through ... ah ... serious gyrations.

So to let you know, the world and U.S. econmies have been having hiccups.

We've gotten nervous inquiries about whether Mass Mutual, our 401(k) administrator, is safe, if the various funds in the Plan are safe, and so on.

Here's some of the skinny: Mass Mutual can go into bankruptcy tomorrow and it won't affect the cash held in our various funds, since by law those are all held separate and apart.

Obviously, if different funds decline in value because of equities or bonds held in those funds, you will lose money. That's the way the market -- usually -- works *.

But the good news is: if the administrator goes under, it won't adversely impact anybody's fund holdings.

What follows is an announcement from the Treasury Department about the type of fund accounts it intends to backstop ... inside or outside 401(k) Plans. Those funds are called "Money Market Funds" and TAG's 401(k) Plan does not currently have any "money market" accounts in its line-up of funds. The closest thing that we have is Mass Mutual's "SAGIC Account," and we are in the process of finding out how the U.S. Treasury's new "Guaranty Program" (detailed below the fold) will impact it.

In the meantime, read Treasury's press release, and gain reassurance that we are on the right track under the sure and steady hand or our Leaders in D.C.

http://www.ustreas.gov/press/releases/hp1147.htm

September 19, 2008

Treasury Announces Guaranty Program for Money Market Funds

Washington- The U.S. Treasury Department today announced the establishment of a temporary guaranty program for the U.S. money market mutual fund industry. For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund – both retail and institutional – that pays a fee to participate in the program.

President George W. Bush approved the use of existing authorities by Secretary Henry M. Paulson, Jr. to make available as necessary the assets of the Exchange Stabilization Fund for up to $50 billion to guarantee the payment in the circumstances described below.

Money market funds play an important role as a savings and investment vehicle for many Americans; they are also a fundamental source of financing for our capital markets and financial institutions. Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system.

Concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets. In turn, these pressures have caused a spike in some short term interest and funding rates, and significantly heightened volatility in exchange markets. Absent the provision of such financing, there is a substantial risk of further heightened global instability.

Maintenance of the standard $1 net asset value for money market mutual funds is important to investors. If the net asset value for a fund falls below $1, this undermines investor confidence. The program provides support to investors in funds that participate in the program and those funds will not "break the buck".

This action should enhance market confidence and alleviate investors' concerns about the ability for money market mutual funds to absorb a loss. Investors in money market mutual funds with a net asset value that falls below $1 would be notified that their fund triggered the insurance program.

The Exchange Stabilization Fund was established by the Gold Reserve Act of 1934. This Act authorizes the Secretary of the Treasury, with the approval of the President, "to deal in gold, foreign exchange, and other instruments of credit and securities" consistent with the obligations of the U.S. government in the International Monetary Fund to promote international financial stability. More information on the Exchange Stabilization Fund can be found here.

* I, of course, exempt those stocks, bonds and companies that the fine socialist government in Washington D.C. has nationalized. That's a different deal.