MarketWatch's Chuck Jaffe writes "New year's retributions: Bad news ahead for mutual fund investors", which mentions money funds in two of his dire (and silly) predictions. He speculates about, "Money-market funds closing: If interest rates don't go up soon, a flood of fund firms will shut down their money-fund business because there's currently no profit in it. Industry watchers say that fee waivers to keep money funds profitable are costing Charles Schwab Corp. some $100 million in earnings per quarter, for example. Corporate boards aren't willing to allow that forever. Already several money funds have shut down or stopped accepting new money, but if rates don't rise soon, that will become a bigger trend. When rates do rise, the financial firms will reduce their waivers and keep virtually all of the increase for themselves, at least initially." He also writes on, "Money-market funds failing: It may seem odd that rates could rise and a money fund could fail, because rising rates will obviously help their backers make a profit. But consider institutional money funds. Corporate treasurers and big power players could decide to capture the rate hike immediately by dumping the fund and moving directly to commercial paper. They leave the fund, which is holding paper that is now less attractive, while trying to get the new rate. If a rate hike is big enough, some institutional fund will bite the big one." In other news, see The Wall Street Journal's "Firms Fight Banks Over Billions in Frozen Notes" about auction-rate securities.
