SEC Caves on Money Funds
You can lead the Securities and Exchange Commission to a clear flaw in financial markets, but you can't make it regulate.</br></br>At least that is the case with money-market funds. Despite urging from a host of other regulators, such as Federal Reserve Chairman Ben Bernanke, to limit the systemic risk posed by these funds, the commission has opted to do nothing.</br></br>Or more aptly, three of its five members have. Any changes were killed by Luis Aguilar, a former mutual-fund executive and swing vote on this issue, opposing plans championed by Chairman Mary Schapiro. That forced Ms. Schapiro to abandon next week's vote on proposals that would have required money funds to either abandon the illusion of their fixed, $1-a-share "value" or create capital buffers to absorb potential losses.</br></br>The question now is what the Financial Stability Oversight Council, the body created after the crisis to identify and deal with broad risks to the financial system, can or will do about the threat posed by money funds. Standing pat will leave the financial system and taxpayers at continued risk.</br></br>Ms. Schapiro and other regulators had looked to act on money funds, which manage nearly $2.6 trillion, because they remain open to potentially destabilizing runs. Indeed, money funds in the fall of 2008 experienced a run that required the government to backstop the industry.