Most of us can reel off the institutions behind the financial crisis, names like Lehman Brothers, Fannie Mae and American International Group. Often missing from the roll call of ignominy is the Reserve Primary Fund, a money-market mutual fund. When it almost collapsed in the fall of 2008, the U.S. economy was pitched into a credit crunch that almost brought on the sequel to the Great Depression.
It turns out that money-market funds can detonate as easily as the nation’s biggest banks and securities firms. Unlike those too-big-to-fail institutions, money-market funds were all but ignored in last year’s Dodd-Frank Act. Regulators should address this oversight by ending the inherent flaw in such funds, which have amassed $2.7 trillion in assets and play a crucial role in the credit markets.