Barron's writes "Broken Forever"
Barron's writes Money Funds are "Broken Forever". The piece says, "What's the difference between a piggy bank and a money-market fund? Not much. Neither is insured, and the returns are basically the same: nothing. The average money fund these days pays just two basis points, or 0.02%. A third of them pay nothing at all. Yet in November and December 2011, investors put more cash into money funds -- $91.7 billion -- than they had since December 2008 and January 2009, when $195 billion poured into the funds. Retail assets account for about a third of the $2.7 trillion held in domestic money-market funds. The reason for that is safety. And that's where the trouble begins -- both for the companies that run money-market funds and the individuals who stash their money there. There are three big reasons for this, starting with the Federal Reserve. The Fed has made clear that it plans to keep overnight rates at their historic lows, which means that the securities money funds buy are also yielding exceedingly low rates. And low rates make it exceptionally hard -- virtually impossible, in fact -- for the funds, and therefore investors, to make any money." It quotes Peter Crane, "We will undoubtedly see more consolidation, but less than people expect. Most of the consolidations or liquidations we've seen are from funds run by [funds like] AARP and PayPal. They were never really in the business in the first place." Barron's adds, "The notion of paying for safety, however, isn't far-fetched, Crane says. "Negative interest rates are nothing new. They used to be called checking accounts," he says. "For centuries, people have paid banks to hold money, not the other way around. There's always been a price for safety, and people are always willing to pay.""
