Free Republic

Don’t put it past our politicians to try it in a financial emergency. The breaking of contracts by the U.S. government, unfortunately, has happened before, and what’s under way in Cyprus shows that feckless politicos will continue to try such things. In 1933–34, amid the depths of the Great Depression, the U.S. government seized the American people’s gold holdings. From that point, until 1975, it was illegal for Americans to own gold, other than in some forms of jewelry or collectors’ coins. In the panic of the Depression years the courts upheld this unconstitutional confiscation. Yes, people received dollars in...

Money-market funds, thought to be one of the safest investments, are actually some of the most dangerous. They are still vulnerable to the same kind of bank run that nearly pushed the global economy over the brink in 2008, and there’s no plan by the industry or by its regulators to fix that vulnerability. The money-market funds are smaller than they were in 2008, but if anything, they are riskier. Current U.S. law prohibits the kind of federal guarantee that, in 2008, stopped the bank run before it could bring down the financial system. The next run on these shadowy...

...in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant.

Money market rates eased on Monday after Europe's central banks said they would lend commercial banks as much U.S. dollar funding as they need. In the latest joint bid to thaw frozen money markets the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also scrapped their existing dollar auction systems and replaced them with a new fixed rate system. "Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction," the Fed said in a statement. "Central banks will continue to work together...