Submitted by Tyler Durden on 08/23/2012 - 20:04 Capital Markets Fractional Reserve Banking Mary Schapiro Timothy Geithner Transparency Volatility William Dudley
Beginning in January of 2010, and continuing into July of this year, we explained how one of the most insidious attempts at capital controls undertaken by the authorities, namely to replace the $1.00 NAV method that money markets have employed since inception, forcing money markets to imposed capital buffers, and most importantly, to enact mandatory gating if and when the time comes for investors to withdraw their money when they so desired, was taking shape. In other words, to institute capital controls when it comes to money market funds. We already explained that the idea to kill money markets is not new, and originated at the Group of 30 many years ago (its members explain its interests vividly enough) , as an attempt to have investors voluntarily shift their capital allocation out of a liquid but very much inert from the fractional reserve banking system $2.7 trillion market into other liquid, but fractional banking levered markets such as stocks and bonds. In essence, this would generate an up to $2.7 trillion incremental demand as those invested in money markets would find it more "appealing" to keep their cash equivalents in the "security" of 150x P/E stocks like Amazon, or in the worst case, Treasury Bills. After all faced with the option of being "gated" or investing their money in other "non capital controlled" markets, one would be an idiot to pick the former. This is precisely what Mary Schapiro hoped would be the case when she put the vote to the SEC, only to find that she couldn't even get a majority to support her own proposal (which as a reminder was supported by two Fed presidents: uber doves Eric Rosengren of Boston and William Dudley of New York, and Treasury Secretary Timothy Geithner) in her own co-opted house. It is also the reason one person decided to vote against Schapiro's proposal - Luis Aguilar. His explanation why he voted against money market fund capital controls is attached.
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http://www.zerohedge.com/news/why-one-sec-commissioner-spoiled-fed-and-treasurys-plan-money-market-capital-controls-his-words
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