Abstract
On September 16, 2008 following heavy losses on its holdings of Lehman Brothers commercial paper in the wake of the Lehman bankruptcy filing, The Reserve Primary Fund "broke the buck" when its net asset value fell below the $1.00 per share target traditionally maintained by money market mutual funds (MMMFs). The resulting losses to investors in the Primary Fund sparked a panic among prime (nongovernment) MMMF investors more generally as they became aware that it was possible to lose money in accounts that were typically viewed as safe. Within a week, roughly $300 billion had been withdrawn from prime MMMFs. To arrest this run on MMMFs, the United States Treasury announced the creation of the Temporary Guarantee Program for Money Market Funds (the Guarantee Program) on September 19th. Under the Guarantee Program, participating MMMFs paid a fee in return for which Treasury agreed to protect investors from any losses on existing holdings resulting from a breaking of the buck. With the fear of losses thus removed, the run on prime MMMFs came to a halt as mass redemptions from prime MMMFs ended almost completely by the end of October. Treasury suffered no losses under the Guarantee Program and earned approximately $1.2 billion in participation fees.
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