The only way to save money-market funds is to destroy them. That's the opinion advanced by Amar Bhide, a Tufts professor, and Christopher Papagianis, a former economic advisor to George W. Bush, in an op-ed today in Bloomberg.

The money-market funds industry has still not been reformed to prevent a 2008-style run, when funds couldn't meet redemption requests, and the authors of the editorial say that's to be expected: "real reforms jeopardize the very existence of the industry," they write.

But by combining reform with a more user-friendly version of the existing TreasuryDirect program, through which investors can buy U.S. Treasuries directly from the government, the authors think that they "could make the demise of money market funds palatable even to their sponsors," who, they note, are "fighting hard to stay in an unprofitable business."

They would call these user-friendly accounts "U.S. Money Funds." These funds would replicate the low-risk investment model that attracts people to money-market funds, while preventing runs like those that money-market funds experienced in 2008. This would return money-market funds to their origins as safe funds that invest only in Treasury bills, before money managers started adopting riskier and riskier investment strategies for the funds.

These new "U.S. Money Funds" could be an alternative if reforms upend the money-funds business, the authors write: "A broader but simpler version of TreasuryDirect would protect the true interests of fund sponsors and their customers, if floating prices and capital requirements displaced the current system." 

Edited by: Chris Cumming


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