Treasury to Help Liquidate Reserve Government Money Market Fund (RUGXX)

The Treasury Department has stepped in to help the Reserve Fund liquidate and pay back its investors.

An article in the WSJ says that the Treasury Department will help to liquidate the Reserve Government Fund, a money market fund that was closed due to a wave of redemptions last September.  The problem with the Reserve family of funds began with their flagship Primary Fund, which broke the buck when Lehman Bros collapsed (breaking the buck means that each share of the fund went below its normal price of $1).  Scared other funds might also lose value, investors began pulling their money out of other Reserve funds.  Faced with a run on their funds, Reserve closed several of them, including the Government fund and began to liquidate.

To date, about 50% of the Government fund has been liquidated.  To speed up the process, the Treasury is going to buy the remaining assets and hold them to maturity, which is generally next year (these are short term securities).  Reserve will then receive the cash to make its investors whole.

Money market funds saw an incredible increase in the rates they were paying from September through October, paying over 5% at one point.  The government insurance program and the TARP has helped to ease fears and now the top money market fund rate is 2.66% according to BestCashCow.

Unlike money market accounts, money market funds are not FDIC insured.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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