Breaking bucks in money market funds

Wisconsin Law Review

Volumn 2010, Issue 5, 2010, Pages 1155-1201

  Birdthistle, William A ^a  

^a CHICAGO KENT COLLEGE OF LAW   (United States)

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EID: 79951921397     PISSN: 0043650X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (311)

1. Letter from Bruce R. Bent, Chairman & CEO, The Reserve, to Investors (Jan. 25, 2008), available at http://www.sec.gov. Archieves/edgar/data/83335/ 000110465908008455/a08-1786-1ncsrs.htm;
2. see also, Floyd Norris, Pride Goeth Before a Fall, N. Y. TIMES (Sept. 16, 2008, 8:24 PM), http://norris.blogs.nytimes.com/2008/09/16/pride-goeth-before- a-fall/?emc=eta1 (stating that "[w]hat is most amazing is the way bragging goes before a fall" and quoting parts of Bent's aphorism present in two letters Bent sent to Reserve shareholders directly before the breaking of the buck in the Reserve's Primary Fund).
3. Sam Mamudi & Jonathan Burton, Money Market Breaks the Buck, Freezes Redemptions, MARKETWATCH (Sept. 17, 2008, 9:11 AM), http://www.marketwatch.com/ story/money-market-fund-breaks-the-buck-freezesredemptions ("The size and speed of the withdrawals was stunning. At 3 p. m. on Tuesday, Primary Fund's assets stood at $23 billion, a $40 billion hit from the $62.6 billion in the fund on Friday....").
4. See INV. CO. INST., 2010 INVESTMENT COMPANY FACT BOOK 160 tbl.37 (50th ed. 2010) [hereinafter ICI FACT BOOK] (listing total net assets of all U. S. money market funds as $3, 316, 196, 000, 000 as of 2009).
5. See HENRY M. PAULSON, JR., ON THE BRINK 228-37 (2010) ("I [then-Treasury Secretary Hank Paulson] feared the start of a run on the $3.5 trillion industry....").
6. See Press Release, The Reserve (Sept. 16, 2008). ("[T]he NAV of the Primary Fund, effective as of 4:00PM, is $0.97 per share.").
7. See Diya Gullapalli et al., Money Fund, Hurt by Debt Tied to Lehman, Breaks the Buck, WALL ST. J., Sept. 17, 2008, at C1 (noting that the "huge moneymarket fund, the Reserve Primary Fund," had broken the buck, marking "the first time one of these conservative funds has had a loss in 14 years").
8. In 1994, the Community Bankers U. S. Government Fund-an institutional, non-retail fund-became the first money market fund to break the buck, returning ninety-six cents per share. David Evans, Unsafe Havens, BLOOMBERG MARKETS (Oct. 2007), http://bloomberg.com/apps/news?pid=nw&pname=mm-1007-story2.html;
9. John Waggoner, Billions Stream into Ultrasafe Government Funds, USA TODAY, Aug. 22, 2007, at 9A (opining that the fund was "tiny" and that "[m]ost analysts suggest that worries about money funds... are unfounded").
10. See LAWRENCE G. MCDONALD WITH PATRICK ROBINSON, A COLOSSAL FAILURE OF COMMON SENSE: THE INSIDE STORY OF THE COLLAPSE OF LEHMAN BROTHERS 325 (2009) (noting the demise of Lehman Brothers and the resulting decisions that "would obliterate the world's economy").
11. See generally RICHARD A. POSNER, THE CRISIS OF CAPITALIST DEMOCRACY 42-47 (2010). On the interaction of money market funds and the credit markets generally
12. see MATTHEW P. FINK, THE RISE OF MUTUAL FUNDS: AN INSIDER'S VIEW 77-94 (2008);
13. MARCIA STIGUM & ANTHONY CRESCENZI, STIGUM'S MONEY MARKET 1110-15 (4th ed., 2007).
14. See Press Release, U. S. Dep't of the Treasury, Treasury Announces Guaranty Program for Money Market Funds (Sept. 19, 2008), available at http://www.ustreas.gov/press/releases/hp1147.htm (announcing the authorization of "the assets of the Exchange Stabilization Fund for up to $50 billion to guarantee" each money market fund).
15. See Press Release, U. S. Dep't of the Treasury, Treasury Announces Expiration of Guaranty Program for Money Market Funds (Sept. 18, 2009), available at http://www.ustreas.gov/press/releases/tg293.htm.
16. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10, 060 (Mar. 4, 2010)
17. (to be codified at 17 C. F. R. pts. 270, 274).
18. Mary Schapiro, Chairman, SEC, Statement on Money Market Funds Before the Open Commission Meeting, Jan. 27, 2010, available at http://www.sec.gov/news/ speech/2010/spch012710mls-mmf.htm.
19. Pub. L. No. 111-203, 124 Stat. 1376 (2010).
20. See generally FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW (1991);
21. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW (7th ed. 2007);
22. Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549 (1984).
23. See generally David Hirshleifer, The Blind Leading the Blind: Social Influence, Fads, and Information Cascades, in THE NEW ECONOMICS OF HUMAN BEHAVIOR 188 (Mariano Tonmasi & Kathryn Ierulli eds., 1995);
24. Amos Tversky & Daniel Kahneman, Introduction to JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES (Daniel Kahneman, Paul Slovic & Amos Tversky eds., 1982);
25. Christine Jolls & Cass R. Sunstein, Debiasing Through Law, 35 J. LEGAL STUD. 199 (2006);
26. Dan M. Kahan & Donald Braman, Cultural Cognition and Public Policy, 24 YALE L. & POL'Y REV. 149 (2006).
27. See Money Market Fund Reform Final Rule, 75 Fed. Reg. at 10, 061-62.
28. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 688-89 (July 8, 2009)
29. (to be codified at 17 C. F. R. pts. 270, 274).
30. See generally JOSEPH NOCERA, A PIECE OF THE ACTION: HOW THE MIDDLE CLASS JOINED THE MONEY CLASS 75-88 (1994).
31. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 688.
32. See id. at 32, 688-90.
33. See, e.g., POSNER, supra note 15, at 480-86.
34. See, e.g., Jolls & Sunstein, supra note 16, at 208-16.
35. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 688.
36. See generally Viktoria Baklanova, Money Market Funds: An Introduction to the Literature (Jan. 26, 2010) (unpublished manuscript), available at http://www.ssrn.com/abstract=1542983.
37. William A. Birdthistle, Compensating Power: An Analysis of Rents and Rewards in the Mutual Fund Industry, 80 TUL. L. REV. 1401, 1421 (2006).
38. See, e.g., Valuation of Debt Instruments and Computation of Current Price by Certain Open-End Investment Companies (Money Market Funds), 48 Fed. Reg. 32, 555 (July 18, 1983) (adopting reforms that permitted money market funds to move from floating to fixed NAVs).
39. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690.
40. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10060, 10, 060-61 (Mar. 4, 2010)
41. (to be codified at 17 C. F. R. pts. 270, 274).
42. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 688 ("Commonly offered features, such as check-writing privileges, exchange privileges, and near-immediate liquidity, have contributed to the popularity of money market funds.").
43. 12 C. F. R. § 225.3 (2009).
44. 12 U. S. C. § 371a (2006).
45. See generally R. Alton Gilbert, Requiem for Regulation Q: What It Did and Why It Passed Away, 68 FED. RES. BANK ST. LOUIS REV. 22 (1986).
46. See Money Market Fund Reform Final Rule, 75 Fed. Reg. at 10, 060-62.
47. See id. at 32, 690.
48. See id. at 32, 690 n. 27.
49. Comment Letter from Jeffrey N. Gordon, Professor, Columbia Law School, to Elizabeth M. Murphy, Secretary, SEC (Sept. 9, 2009), available at http://www.sec.gov/(select "Search", search "Gordon" and "comment letter").
50. Frank Partnoy, The Siskel and Ebert of Financial Markets?: Two Thumbs Down for the Credit Rating Agencies, 77 WASH. U. L. Q. 619, 654-79 (1999) [hereinafter Partnoy, Siskel and Ebert].
51. See generally Christian A. Johnson, Justice and the Administrative State: The FDIC and the Superior Bank Failure, 36 LOY. U. CHI. L. J. 483 (2005).
52. See Press Release, U. S. Treasury, supra note 10 (announcing the guaranty of money market funds by the U. S. Treasury and the Federal Reserve).
53. See generally Karl S. Okamoto, After the Bailout: Regulating Systemic Moral Hazard, 57 UCLA L. REV. 183 (2009).
54. See ICI FACT BOOK, supra note 3, at 160 tbl.37.
55. See id. at 22, 23 fig.2.1.
56. See generally Daniel E. Levin, Breaking the Buck: The End for Money Market Mutual Funds as We Know Them, 28 REV. BANKING & FIN. L. 747 (2009).
57. See TAMAR FRANKEL & CLIFFORD E. KIRSCH, INVESTMENT MANAGEMENT REGULATION 463-64 (3d ed. 2005).
58. See Diana B. Henriques, The Buck Broke. So How To Retool Money Funds?, N. Y. TIMES, Oct. 11, 2009, at BU13.
59. For an excellent overview of the financial literature studying the economic dynamics and performance of money market funds over the past four decades, see Baklanova, supra note 23 (surveying "studies related to funds' investment management practices").
60. FINK, supra note 9, at 80-81;
61. see also Revisions to Rules Regulating Money Market Funds, 55 Fed. Reg. 30, 239 (Jul. 25, 1990)
62. (to be codified in 17 C. F. R. 230, 239, 270, 274).
63. See Timothy Q. Cook & Jeremy G. Duffield, Money Market Mutual Funds and Other Short-Term Investment Pools, in INSTRUMENTS OF THE MONEY MARKET 156, 164-65 (Timothy Q. Cook & Robert K. Laroche eds., 7th ed. 1993).
64. Note that any growth in assets under management that accrue merely as a function of new investors joining a fund does not increase returns to existing shareholders. Indeed, this phenomenon generally benefits only the fund sponsor. See Birdthistle, supra note 24, at 1425-26.
65. See Baklanova, supra note 23, at 5 n. 6 (discussing the array and magnitude of fees associated with the management and operation of money market funds).
66. See ICI FACT BOOK, supra note 3, at 200 n. 2 (reporting total mutual fund assets under management of more than $12 trillion in 2009).
67. Worldwide holdings in money market funds reached a peak of $5.7 trillion in 2009. See INV. CO. INST., WORLDWIDE MUTUAL FUND ASSETS AND FLOWS SUPPLEMENTARY TABLES, SECOND QUARTER 2009 tbl. S4 (Oct. 29, 2009).
68. Investment Company Act of 1940, 15 U. S. C. § 80 (a)-51 (2006).
69. 17 C. F. R. §§ 270.2a-7, 270.22c-1 (2010).
70. More specifically, money market funds are "open-end management investment companies that are registered under the Investment Company Act and regulated under rule 2a-7 under the Act." Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 688 (July 8, 2009)
71. (to be codified at 17 C. F. R. pts. 270, 274).
72. 15 U. S. C. § 80a-2 (a) (41).
73. 17 C. F. R. § 270.2a-7.
74. § 270.22c-1.
75. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690 (describing the rules and requirements for using the "mark-to-market" accounting method).
76. See id.
77. William A. Birdthistle, The Fortunes and Foibles of Exchange-Traded Funds: A Positive Market Response to the Problems of Mutual Funds, 33 DEL. J. CORP. L. 69, 86-87 (2008) [hereinafter Birdthistle, Fortunes and Foibles] (describing the use of "forward pricing" in mutual funds, which results in the calculation of a price only once a day, rather than constantly as with an exchange-traded financial product).
78. See id.
79. Id. at 103-04 (analyzing situations in which funds have engaged in unfair valuations of their portfolios).
80. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690.
81. See Stephen Choi & Marcel Kahan, The Market Penalty for Mutual Fund Scandals, 87 B. U. L. REV. 1021 (2007) (analyzing investor flows related to claims of market-timing and other alleged malfeasance in mutual funds).
82. See Birdthistle, Fortunes and Foibles, supra note 60, at 103-04.
83. See FRANKEL & KIRSCH, supra note 43, at 302.
84. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 716-17;
85. see also Dale L. Domian & William Reichenstein, Performance and Persistence in Money Market Fund Returns, 6 FIN. SERVS. REV. 169, 171-72 (1997).
86. See generally Presentment of Check During Run on Bank, 49 BANKING L. J. 173 (John Edson Brady ed., 1932) (reviewing legal principles of liability attaching to various parties in the event of a run on the bank).
87. See Birdthistle, Fortunes and Foibles, supra note 60, at 90.
88. See ICI FACT BOOK, supra note 3, at 42-44.
89. See generally Lynn Stout, On the Nature of Corporations, 2005 U. ILL. L. REV. 253 (describing and discussing "capital lock-in").
90. See id. at 255-58.
91. See id. at 265;
92. Levin, supra note 42, at 749.
93. See Anupam Chandar, Corporate Law's Distributive Design, 118 YALE L. J. POCKET PART 82 (2008), http://thepocketpart.org/2008/10/28/chanderresponse.html.
94. See John Morley & Quinn Curtis, Taking Exit Rights Seriously: Why Governance and Fee Litigation Don't Work in Mutual Funds, YALE L. J. (forthcoming 2010), available at http://www.ssrn.com/abstract=1547162 (arguing that redemption eliminates the need for and efficacy of other standard corporate governance mechanisms in mutual funds).
95. See Press Release, President's Working Grp. on Fin. Mkts., Money Market Fund Reform Options 19-23 (Oct. 2010) ("By making gains and losses a regular occurrence, as they are in other mutual funds, a floating NAV could alter investor expectations and make clear that MMFs are not risk-free vehicles.").
96. See id.
97. See Charles K. Whitehead, Reframing Financial Regulation, 90 B. U. L. REV. 1, 21-25 (2010) (stating that "the drop below one dollar per share" in the Reserve's breaking of the buck "raised the same concerns that spark a bank run - a loss of confidence over financial stability, fueled by uncertainty over the value of the [money market fund's] assets, causing widespread redemptions across the industry");
98. Richard McAdams, Beyond the Prisoner's Dilemma: Coordination, Game Theory, and Law, 82 S. CAL. L. REV. 209, 216 (2009) (discussing whether "[b]ank runs represent a classic prisoner's dilemma").
99. Whitehead, supra note 78, at 21.
100. Id. at 13.
101. Id.
102. See FRANKEL & KIRSCH, supra note 43, at 301-02.
103. See MCADAMS, supra note 78, at 216-17.
104. See Henriques, supra note 44, at BU 13.
105. See Levin, supra note 42, at 750 ("The contractual terms of the deposit agreement, not market factors, govern the obligation of the bank to pay the depositor her principal.").
106. Id.
107. Id.
108. See generally NOCERA, supra note 18 (discussing how middle class investors became more willing to acquire debt and accept risk through their growing participation in stocks, mutual funds, and money market accounts).
109. See id. at 77-80.
110. See FINK, supra note 9.
111. See Levin, supra note 42, at 763-65.
112. See generally Niall Ferguson, Remarks at the Carnegie Council Global Ethics Forum: The Ascent of Money: A Financial History of the World (Nov. 20, 2008), available at http://www.carnegiecouncil.org/resources/video/data/000094.
113. See Money Market Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 724 (July 8, 2009)
114. (to be codified at 17 C. F. R. pts. 270, 274).
115. See Partnoy, supra note 36, at 639.
116. Id. at 621-22.
117. See id. at 629-30.
118. Id. at 622 n. 12
119. See Steven L. Schwarcz, Systemic Risk, 97 GEO. L. J. 193, 199 (2008) (describing bank runs and their dynamics as classic examples of systemic risk).
120. FDIC Mission, Vision, and Values, FEDERAL DEPOSIT INSURANCE CORPORATION, http://www.fdic.gov/about/mission/index.html.
121. Press Release, Fed. Deposit Ins. Corp., Basic FDIC Insurance Coverage Permanently Increased to $250, 000 Per Depositor (Jul. 21, 2010), http://www.fdic.gov/news/news/press/2010/pr10161.html.
122. See id.
123. See Schwarcz, supra note 98, at 211 (noting the salutary effects of the creation of the FDIC).
124. See generally Gilbert, supra note 31 (reviewing the history, administration, and goals of Regulation Q).
125. See id. at 22.
126. Id.
127. Id.
128. Id. at 23.
129. See Joseph A. DiNuzzo, The Depository Institutions Deregulation Committee: Did It Achieve the Goal?, 101 BANKING L. J. 100, 100-01 (1984).
130. See Gilbert, supra note 31, at 29 fig.3.
131. See Kenneth T. Rosen & Larry Katz, Money Market Mutual Funds: An Experiment in Ad Hoc Deregulation, 36 J. FIN. 1011, 1011, 1015 (1983).
132. See Gilbert, supra note 31, at 29-30.
133. See supra text accompanying notes 24-25.
134. See supra text accompanying notes 25-27.
135. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 688 (July 8, 2009)
136. (to be codified at 17 C. F. R. pts. 270, 274).
137. See Gilbert, supra note 30, at 31, 32-33;
138. Levin, supra note 42, at 752-53.
139. Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690.
140. Id.
141. See id.
142. See id. at 32, 688, 32, 690.
143. See, e.g., Richard A. Booth, Things Happen, 55 VILL. L. REV. 57, 64 (2010) ("Consumers developed unrealistic expectations about money market funds (MMFs). Consumers came to assume that MMFs were equivalent to an insured checking account that paid interest.").
144. Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690 n. 23.
145. Id. at 32688.
146. See Levin, supra note 42, at 753-54.
147. Id. at 752-53, 756.
148. Id. at 756.
149. Id. at 757.
150. See ICI Fact Book, supra note 3, at 160 tbl.37.
151. See id.
152. See id. at 126 tbl.3.
153. See id. at 128 tbl.5.
154. See id. at 22, 126;
155. Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 688-89 (July 8, 2009)
156. (to be codified at 17 C. F. R. pts. 270, 274).
157. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 689.
158. Id.
159. Id.
160. Id.
161. Id.
162. See id.
163. See id.
164. See PAULSON, supra note 4, at 234-38.
165. See MCDONALD, supra note 8, at 324-25;
166. Steven M. Davidoff & David Zaring, Regulation by Deal: The Government's Response to the Financial Crisis, 61 ADMIN. L. REV. 463, 504-08 (2009) (noting the role of money market funds and the Reserve's breaking of the buck in the cascade of events culminating in the financial crisis of 2008);
167. Edward R. Morrison, Is the Bankruptcy Code an Adequate Mechanism for Resolving the Distress of Systemically Important Institutions?, 82 TEMP. L. REV. 449, 451 (2009).
168. See Mamudi & Burton, supra note 2.
169. See id.
170. Id.
171. See Mercer E. Bullard, Federally-Insured Money Market Funds and Narrow Banks: The Path of Least Insurance, (March 2, 2009) (unpublished article), available at http://ssrn.com/abstract=1351987 ("An [money market fund] is permitted to maintain a $1.00 per share NAV only as long as the per share market value of its holdings does not drop below $0.995.").
172. See Kenneth Ayotte & David A. Skeel, Jr., Bankruptcy or Bailouts?, 35 J. CORP. L. 469, 488-90 (2010).
173. While causality is difficult to establish, most observers believe that the fear resulting from the Lehman filing and the implications for Reserve Primary Fund spilled over into redemption requests at other money market funds, many of which had negligible exposure to Lehman. Systemic concerns were substantial, because many corporate borrowers rely on the commercial paper market to fund their short-term operations, and a run on money market funds takes needed capital out of this market. Id. at 489.
174. See Henriques, supra note 44.
175. See Press Release, President's Working Grp. on Fin. Mkts., supra note 76, at 11-13 (discussing the run on the Reserve Primary Fund);
176. Andrew B. Lyon, Money Market Funds and Shareholder Dilution, 39 J. FIN. 1011 (1984).
177. See Kara McGuire, Ameriprise Sues Managers of Troubled Money Fund, MINN. STAR-TRIB., Sept. 19, 2008, at D1, D2 ("With billions of dollars of client money at stake, Minneapolis broker-dealer Ameriprise Financial Inc. on Friday sued New York fund manager the Reserve Management Co., alleging it tipped off big institutional investors about its troubled money market fund, the Primary Fund, but not smaller investors.");
178. see also In the Matter of The Reserve Fund, Investment Company Act, 73 Fed. Reg. 55, 572, 55, 572 (Sept. 25, 2008) (in which the SEC issued an order permitting the suspension of redemptions in certain Reserve funds to permit their orderly liquidation).
179. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 691 (July 8, 2009)
180. (to be codified at 17 C. F. R. pts. 270, 274).
181. Id.
182. See id. at 32, 691-92.
183. In 1994, the Community Bankers U. S. Government Fund became the first money market fund to break the buck, when its price per share fell four cents short of the $1.00 level. See Mamudi & Burton, supra note 2.
184. Id.
185. See Bullard, supra note 144, at 10 ("On occasions when [money market funds'] share values have declined below or have come close to declining below $0.995, their sponsors have purchased the impaired portfolio securities at their face value, injected cash into the fund, or taken other steps to prevent the fund's price from dropping below $1.00 per share.").
186. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 690-91.
187. See id.
188. See id. at 32, 691.
189. See id. at 32, 691-92.
190. See id. at 32, 692.
191. Id.
192. Id.
193. Diana B. Henriques, Rescue Plan for Funds Will Come at a Price, N. Y. TIMES, Sept. 20, 2008, at C1.
194. See Norris, supra note 1.
195. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10, 060, 10, 060 (Mar. 4, 2010)
196. (to be codified at 17 C. F. R. pts. 270, 274).
197. See id. at 10, 060-63.
198. See generally Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
199. See generally POSNER, supra note 15.
200. See RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS 104 (2008).
201. See S. E. C. Plan to Distribute Money Fund Is Accepted, N. Y. TIMES, Nov. 25, 2009, at B3 ("The estimated $3.5 billion remaining assets of the Reserve Primary Fund should be distributed on a prorated basis to shareholders, a federal judge ruled on Wednesday in response to lawsuits filed after the fund's value dropped below $1 a share in September 2008.... In a ruling that largely accepts a distribution plan proposed by the Securities and Exchange Commission, the judge said that regulators and the fund's trustees estimated that investors would recover 99 cents a share if remaining assets were distributed pro rata.").
202. Booth, supra note 120, at 65.
203. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10, 060, 10, 099 (Mar. 4, 2010)
204. (to be codified at 17 C. F. R. pts. 270, 274).
205. See id. at 10, 070-78.
206. See Letter from Jeffrey N. Gordon to Elizabeth M. Murphy, supra note 35, at 3.
207. See S. E. C. Plan to Distribute Money Fund is Accepted, supra note 169.
208. See Money Market Fund Reform Final Rule, 75 Fed. Reg. at 10, 070.
209. Id.
210. Id.
211. Letter from Jeffrey N. Gordon to Elizabeth M. Murphy, supra note 35, at 2.
212. Money Market Fund Reform Final Rule, 75 Fed. Reg. at 10, 070.
213. Letter from Jeffrey N. Gordon to Elizabeth M. Murphy, supra note 35, at 3.
214. See STIGUM & CRESCENZI, supra note 9, at 51-53.
215. See id.
216. See id.
217. See id.
218. See id.
219. See PAULSON, supra note 4, at 235.
220. See MCDONALD, supra note 8.
221. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10, 060, 10, 068-69 (Mar. 4, 2010)
222. (to be codified at 17 C. F. R. pts. 270, 274);
223. Frank Partnoy, Historical Perspectives on the Financial Crisis: Ivar Kreuger, the Credit-Rating Agencies, and Two Theories about the Function, and Dysfunction, of Markets, 26 YALE J. ON REG. 431, 442 (2009) [hereinafter Partnoy, Historical Perspectives] ("Over time, private use of credit ratings grew to mimic regulatory use.... Instead of using judgment to assess credit risk or even looking to key measures of credit risk-especially probability of default-private actors simply relied on ratings.").
224. See Money Market Fund Reform Final Rule, 75 Fed. Reg. at 10, 068.
225. See, e.g., Kia Dennis, The Ratings Game: Explaining Rating Agency Failures in the Build Up to the Financial Crisis, 63 U. MIAMI L. REV. 1111, 1113 (2009).
226. Press Release, SEC, SEC Approves Money Market Fund Reforms to Better Protect Investors (Jan. 27, 2010), http://www.sec.gov/news/press/2010/2010-14. htm.
227. Id.
228. See Dennis, supra note 190, at 1124-25;
229. Partnoy, Historical Perspectives, supra note 188, at 438, 442;
230. Frank Partnoy, Siskel and Ebert, supra note 36.
231. See Partnoy, Siskel and Ebert, supra note 36, at 623.
232. Id. at 623-24.
233. Kathleen L. Casey, Comm'r, SEC, Statement on Proposing Release, Money Market Fund Reform (Jan. 27, 2010).
234. See Money Market Fund Reform Final Rule, 75 Fed. Reg. 10, 060, 10, 060 (Mar. 4, 2010)
235. (to be codified at 17 C. F. R. pts. 270, 274).
236. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 688-89 (July 8, 2009)
237. (to be codified at 17 C. F. R. pts. 270, 274).
238. Bullard, supra note 144, at 28.
239. Id. at 1, 28.
240. See supra text accompanying notes 23-27.
241. See, e.g., Stephen D. Sugarman & Nirit Sandman, Fighting Childhood Obesity Through Performance-Based Regulation of the Food Industry, 56 DUKE L. J. 1403, 1432 ("The federal government directly subsidizes certain farming interests in ways that allow them to keep their prices down and increase quantities consumed. The subsidy of corn-based sugar products is especially troubling in this regard....").
242. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 709-10.
243. See id. at 32, 710.
244. See Booth, supra note 120, at 65 ("[T]he illusion that MMFs were riskfree created a moral hazard that led depositors to move more funds into MMFs than they should have.").
245. See, e.g., David S. Miller, Note, Insurance as Contract: The Argument for Abandoning the Ambiguity Doctrine, 88 COLUM. L. REV. 1849, 1863 (1988).
246. See FRANKEL & KIRSCH, supra note 43, at 463.
247. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 712.
248. See PAULSON, supra note 4.
249. Booth, supra note 120, at 65.
250. See Ayotte & Skeel, supra note 145, at 489 ("The Lehman/Reserve Primary Fund situation illustrates the difficult choice between providing a government rescue to prevent systemic consequences... and limiting moral hazard.")
251. See, e.g., EASTERBROOK & FISCHEL, supra note 15.
252. See THALER & SUNSTEIN, supra note 168.
253. Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549, 550 (1989).
254. See id. at 631-32.
255. The Investor's Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation, U. S. SECURITIES AND EXCHANGE COMMISSION, http://www.sec.gov/about/whatwedo.shtml (last modified Sept. 20, 2010).
256. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 710 (July 8, 2009)
257. (to be codified at 17 C. F. R. pts. 270, 274).
258. See, e.g., James D. Cox & John W. Payne, Mutual Fund Expense Disclosures: A Behavioral Perspective, 83 WASH. U. L. Q. 907, 926 (2005) (explaining why, under current disclosure practices, investors cannot be relied upon to make rational choices).
259. See id.
260. James J. Eccleston, SEC Issues Helpful Investment Guide, CHI. DAILY L. BULL., May 8, 2006, at 5.
261. See FRANKEL & KIRSCH, supra note 43, at 463.
262. See Mamudi & Burton, supra note 2.
263. See generally William A. Birdthistle, Investment Indiscipline: A Behavioral Approach to Mutual Fund Jurisprudence, 2010 U. ILL. L. REV. 61 [hereinafter Birdthistle, Investment Indiscipline].
264. See id. at 72.
265. See id. at 72-73.
266. Letter from Jeffrey N. Gordon to Elizabeth M. Murphy, supra note 35, at 9.
267. Birdthistle, supra note 223, at 73.
268. See supra text accompanying notes 4-7.
269. Andrew J. Donohue, Director, Div. of Inv. Mgmt., SEC, Remarks Before the Practicing Law Institute's Investment Management Institute (Apr. 8, 2010).
270. See Gilson & Kraakman, supra note 214, at 552, 554.
271. See Levin, supra note 42, at 750-53.
272. Id. at 750-51.
273. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 690 (July 8, 2009)
274. (to be codified at 17 C. F. R. pts. 270, 274).
275. See Henriques, supra note 44, at BU13.
276. See supra text accompanying notes 78-82.
277. See ICI FACT BOOK, supra note 3, at 34 (noting that for the first time in the last fifteen years, yields on money market funds were lower than those on bank accounts in 2009).
278. An Inadequate Case for the Bailout, N. Y. TIMES, Sept. 24, 2008, at A26.
279. See, e.g., J. P. MORGAN, JPMorgan Short Duration Bond Fund, in PROSPECTUS: J. P. MORGAN INCOME FUNDS 10 (July 1, 2010) (describing the investment strategies and holdings of this open-end mutual fund).
280. See, e.g., id.
281. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. 32, 688, 32, 718 (July 8, 2009)
282. (to be codified at 17 C. F. R. pts. 270, 274).
283. E.g., Kathleen E. Lange, Note, The New Antifraud Rule: Is SEC Enforcement the Most Effective Way to Protect Investors from Hedge Fund Fraud?, 77 FORDHAM L. REV. 851, 873-74 (2008).
284. See supra text accompanying notes 46-47.
285. See Money Market Fund Reform Proposed Rule, 74 Fed. Reg. at 32, 689;
286. Sugarman & Sandman, supra note 202, at 1432 (discussing corn subsidies);
287. see also Navigating New Rules: Q&A w/Stephen Keen, MONEY FUND INTELLIGENCE, Feb. 2010, at 1, 3-4 ("People who actually have money invested in funds, particularly individuals, uniformly said, 'Don't do that. I don't want a fluctuating product, and I don't want to have to put my money in a bank. I like what money market funds do. I know I have a risk of loss. I accept that.'").
288. See D. Daniel Sokol, Limiting Anticompetitive Interventions That Benefit Special Interests, 17 GEO. MASON L. REV. 119, 127 (2009).
289. THALER & SUNSTEIN, supra note 168.
290. See id.
291. Id.
292. See Pension Protection Act of 2006, Pub. L. No. 109-280, § 624, 120 Stat. 980 (2006).
293. See Birdthistle, Investment Indiscipline, supra note 223, at 67.
294. See, e.g., James J. Choi et al., For Better or for Worse: Default Effects and 401 (k) Savings Behavior, in PERSPECTIVES ON THE ECONOMICS OF AGING 81, 81-121 (David A. Wise ed., 2004).
295. Pension Protection Act of 2006, § 624 (a) (5).
296. Birdthistle, Investment Indiscipline, supra note 223, at 67.
297. See supra text accompanying notes 77-81.
298. See, e.g., Mohammad H. Fadel, Riba, Efficiency, and Prudential Regulation: Preliminary Thoughts, 25 WIS. INT'L L. J. 655, 695 (2008) (explaining that Islamic financial law adopts a laissez-faire attitude towards business dealing, but also has regulatory aspects).
299. See id. at 657 (arguing that Islamic financial law regulation is part of a larger prudential scheme).
300. See Henriques, supra note 44.
301. Who is the FDIC?, FEDERAL DEPOSIT INSURANCE CORPORATION, http://www.fdic.gov/about/learn/symbol/WhoistheFdIC.pdf (last updated Aug. 11, 2010).
302. See Press Release, U. S. Dept. of the Treasury, supra note 10.
303. See id.
304. See, e.g., Timothy Stoltzfus Jost, The Massachusetts Health Plan: Public Insurance for the Poor, Private Insurance for the Wealthy, Self-Insurance for the Rest?, 55 U. KAN. L. REV. 1091 (2007).
305. See Henriques, supra note 44.
306. See Mamudi & Burton, supra note 2.
307. See Henriques, supra note 44.
308. See Johnson, supra note 37.
309. See Bullard, supra note 144.
310. Letter from Jeffrey N. Gordon to Elizabeth M. Murphy, supra note 35, at 2-10 (discussing possible ways to adjust fund insurance payments for their respective risk profiles).
311. See PAULSON, supra note 4, at 234-37.