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Biden’s SEC Threatens Savings of Retirees

Posted on Friday, July 21, 2023
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by David Lewis Schaefer
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AMAC Exclusive – By David Lewis Schaefer

SEC

While President Joe Biden and his PR team tout the supposed successes of “Bidenomics,” his regulatory appointees at the Securities and Exchange Commission (SEC) are creating more obstacles to real economic growth, hampering the ability of everyday investors to overcome losses from inflation.

Last week, a vote by the SEC Commissioners established a new policy requiring money market funds (MMFs) to hold at least 25 percent of their assets in “daily liquid assets” and 50 percent of their assets in “weekly liquid assets,” as opposed to the current requirements of 10 percent and 30 percent, respectively. The vote on the change was the Commission’s three Democrats in favor and two Republicans against (the five SEC Commissioners are all appointed by the president, with the requirement that no more than three members can be from the same political party).

In contrast to huge losses and volatility in the stock and bond markets, MMFs have provided safe and steady gains for the typical saver over the past year, averaging around a five percent return. In total, MMFs currently hold nearly $6 trillion in assets, and are characterized by short maturities and minimal credit risk.

SEC chair Gary Gensler acknowledged in announcing the new policy that MMFs “provide millions of Americans with a deposit alternative to traditional bank accounts.” He might have also added that MMFs typically provide a combination of higher interest and greater flexibility than bank certificates of deposit offer.

Yet MMFs, invented over a half-century ago, also offer a degree of safety that is very close to what federally insured bank accounts offer, and quite likely higher than bank deposits that exceed the limit of federal insurance.

MMFs do this by investing in short-term loans, including government bonds, currently (in the case of one of the largest such funds, Vanguard Government Money Market Fund) with an average weighted duration of 46 days. “Weighted” here means based on the amount allocated to different investments as opposed to a mere average of all investments regardless of their size. The funds are required to invest solely in the highest (AAA) rated securities.

The short duration of the MMFs’ holdings largely guarantees their ability to maintain a constant share value of one dollar, regardless of market developments – since a rise in overall interest rates is rapidly reflected in the rates paid on the funds’ holdings. (This is in contrast with longer-term bond funds, whose value will vary with rate changes.)

Rarely has a MMF ever been on the verge of “breaking the buck;” that is, proving unable to redeem shares at their one-dollar value. When this threat arises, the large fund families sponsoring such funds normally intervene to preserve their value.

When general interest rates were low, MMF returns, like those of bank CD’s, were correspondingly low, and fewer investors chose to place their savings in them. The opposite is the case today.

But the funds’ record of safety isn’t enough to satisfy Chairman Gensler and his Democrat colleagues. Supposedly in order to insure against the danger of a “run” on MMFs, in which the funds prove unable to redeem shares at their par value, Gensler & Co. want to shorten the average maturity of their assets.

By way of contrast to the SEC’s new rule, the Vanguard Government Securities Money Market Fund, not only one of the largest MMFs (and part of one of the largest fund families), as of July 18 held 145 securities, with an average weighted maturity of 46 days. In other words, in order to comply with the SEC’s new rule, the fund will have to reduce the average maturity of its holdings and put one-quarter of its funds into “assets” that have a maturity of just a day – merely overnight loans – and half the assets into securities that mature within a week.

But since overnight loans pay only minuscule interest, and even those with a week’s duration pay relatively little, the result will be a significant decline in the fund’s earnings, and hence the dividends it pays its shareholders.

The effect is no different from an additional tax on shareholders’ earnings. Ordinary investors will make less, while their money will in effect be less secure as diminished returns and ongoing inflation eat into it.

The SEC’s new rule is ostensibly designed to avert the danger of an MMF “breaking the buck” – that is, being unable to maintain its share value as a result of a sudden rush of investors attempting to withdraw their money at a rate faster than the fund can earn interest to cover them.

But this is an event that has occurred very rarely. In the history of the money market, dating back to 1971, less than a handful of funds broke the buck until the 2008 financial crisis. In 1994, a small MMF that invested in adjustable-rate securities got caught when interest rates increased and paid out only 96 cents for every dollar invested. But as this was an institutional fund, no individual investor lost money, and altogether 37 years passed without a single individual investor losing a cent.

Only in 2008, the day after the Lehman Brothers investment firm filed for bankruptcy, did one MMF fall to 97 cents after writing off the debt it owned that was issued by Lehman. This created the potential for a bank run in money markets, as there was fear that more funds would break the buck.

Shortly thereafter, another fund announced that it was liquidating due to redemptions, but the next day the United States Treasury announced a program to insure the holdings of publicly offered money market funds so that if a covered fund were to break the buck, investors would be protected to ensure the continuing $1 net asset value of their holdings.

It cannot be denied, then, that money-market funds – especially smaller ones that aren’t part of large fund families – pose a slightly higher risk than bank accounts do. (That risk is practically nonexistent in the case of funds that invest solely in federal securities, like the Vanguard fund.) On the other hand, however, in times like these, they offer the potential for significantly higher return – not enough to outpace high inflation plus income taxes, but still a lot more than one can earn on a one-year bank CD (national average as of July 18, about 1.25 per cent).

MMFs by law must emphasize to potential investors that they aren’t government-insured, and therefore cannot be guaranteed never to lose share value. But against that (nearly minuscule) risk must be balanced the real prospect of interest-rate risk: the danger that the value of one’s savings will be considerably eroded if the only place to put them, assuming one is a very conservative investor (say, a retiree) is several points below the rate of inflation.

Nearly all money-market investors can be counted on to be aware of the risks as well as the potential rewards of their investments, and to plan accordingly. Mr. Gensler and his allies, however, want to protect them against themselves – at the risk of reducing the earnings from their savings.

If anything, the new SEC rule – combined with other similarly ill-formed regulations announced at the same time as the new rules on asset allocation – may drive savers into more risky investments (stocks, bonds, real estate) just to compensate for the reduced interest that MMFs are now able to pay them. The beneficiaries, if any, of such a switch will be the high-flyers who can afford to take such risks (especially younger investors, whose time horizon lets them ride out market swings in a way that those in or nearing retirement cannot).

Gensler’s new policy exemplifies the sort of “tutelary” despotism that Alexis de Tocqueville feared, in which government, with the most benign intentions, seeks to remove from citizens the power of making significant choices, lest they violate the knowledge of “experts.”

Americans would be better off if Democrat regulators at the SEC (or Lina Khan, the activist chair of the Federal Trade Commission, who has abandoned the traditional consumer-welfare standard for assessing corporate mergers in favor of an all-out-war on mergers that offend her sensibilities), simply left them alone, except in the case of genuine dangers.

President Biden, how about passing this lesson along to them?

David Lewis Schaefer is a Professor Emeritus of Political Science at College of the Holy Cross.

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Joanne 4 justice
Joanne 4 justice
11 months ago

Biden is the worst POTUS ever in history of USA he and his evil Comrades need to be REMOVED!

Dean Howerton
Dean Howerton
11 months ago

LETS GO BRANDON

Rick
Rick
11 months ago

What hasn’t Biden threatened? Talk about man made disasters.

Ann S
Ann S
11 months ago

This is all in preparation what the BRICS countries going to do next month in Johannesburg. The talk is the dollar will be scrapped as the standard in the world. Be prepared for hyper inflation if the dollar is devalued.
The time has come to get a wheelbarrow to go shopping with to hold all your money. Feels like pre World War II doesn’t it. We are living those decades again.
Be prepared for that your money will become worthless and we are all living with the homeless on the street.
I hate to say it but Trump and the true republicans told you so.
WAKE UP AMERICA.

Kdesq
Kdesq
11 months ago

Really? President Biden? He can’t even figure out where he is, he knows nothing of this garbage. Everyone is running their own department and that clown just signs off on it because he’s told to. ALL DEMOCRATS SUCK.

Maryanne Drake
Maryanne Drake
11 months ago

The only persons who profited from Bidenomics where those whose.last name is Biden. Everyone else has gotten suffered

A Voter
A Voter
11 months ago

The real Democrat mantra, “We want your money, we want ALL your money and we don’t care where we steal it from because in order for us to win, we have to buy all the votes we can. But do not fear, there is light at the end of the tunnel. Once we have total control, we won’t need to buy any more votes. We won’t need the voters either so there is that.”

Cross
Cross
11 months ago

Biden you disgusting rotting POS skinbag, 50 Years of HATE and never Held a Job. You and your Family are Worthless bottom feeding scum dwellers.
but enough of your uselessness
Who is Running this Country?? Why Do We the People do not know this???
everyone has their ideas or speculations, but we really Do Not Know..

anna hubert
anna hubert
11 months ago

This is only an Overture to the coming event

Jackie
Jackie
11 months ago

I’m disgusted with the Democrats and this administration (so many who have been seniors for many years) trying to take every penny from whomever they can get it!! They should be helping the seniors instead of giving away taxpayer dollars to student who legitimately signed a promissory note to repay!! There are many seniors who are Democrat voters and I would hope that if this happens that those Democrat seniors will finally wake up to the Democrats and their devious, conniving, despicable, arrogant, selfish, hateful ways!!!

Jeri
Jeri
11 months ago

Maybe my savings are better off under the mattress and buried in the woods…

DenvilleSr
DenvilleSr
11 months ago

I guess when, as a Senator or VP of the US, you make your money by getting bribes from crooked, foreign corporate executives in exchange for favors your office can provide, you don’t need to worry about money market funds us lowly middle income retirees invest in.

Rik
Rik
11 months ago

Jacka** Joe, the unifier!

Dave
Dave
11 months ago

All that he lays his eyes upon…. he is evil personified.

Caroline
Caroline
11 months ago

Can you communicate articles like this in the future in more simple terms. I read it, but I am not quite sure what the effect it has on me.

James P.
James P.
11 months ago

“Don’t underestimate Joe Biden’s ability to @#%& things up.”
Number 44

Steven Tapper
Steven Tapper
11 months ago

Ever notice that anything Biden does turns out to become a boondoggle? If his intention is to ruin the middle class that’s the only thing he has accomplished in his time as President.

JayA
JayA
11 months ago

Everything the faux president and his evil cabal touches turns to crap! Everything!!

PaulE
PaulE
11 months ago

Under the Biden administration, we have been moving steadily towards the point where the government exerts so much control over one’s personal investment decisions that the individual will actually have no control over their own assets. While they won’t overtly confiscate your assets, at least not for the time being, they will certainly micro-manage what you can do with those assets to the point where they ultimately call all the shots. Which of course in the globalist mindset that now prevails through most western nations and means that the government will completely control what you can invest in and what your rate of return will be allowed to be.

All of this is simply a precursor to the roll-out of the last stage of the international CBDC being directed by BIS (Bank of International Settlement). The stage where, in one final and sweeping action, your money becomes the government’s money that is periodically doled out to you depending on your social credit score. Feel free to go the BIS web site yourself and read where they are in this plan in the July 10, 2023 report. Ignorance of what is coming down the road is definitely NOT bliss. Meanwhile, the Biden administration continues to do its part to adopt this global agenda.

ButchG
ButchG
11 months ago

Did your Senators or Congressional Rep’s debate this regulation issue on the floor of Congress? Representation? The Constitution gives only the Congress the power to do this. So, the SEC, composed of ideological unelected appointed bureaucrats’ issued this regulation decree. So, what do you think they will do with an electrical blip digital currency that we can’t see, touch, hear, smell and travels at the speed of light? Wait for it, It’s here, the Federal Reserve is rolling out the long awaited contrived digital dollar shortly. We will have NO control of our currency. Choices will be controlled for us and limited depending on our behavior. I can’t believe the national one year CD average yield is 1.25%. Seems really low. I am getting a 5.3% CD yield at Charles Schwab for only THREE MONTHS! We The People Are The Government and Sovereign!

Glen
Glen
11 months ago

Biden is the puppet. This is Barry’s third term and he is just doing what he is told to do by ???

Robert Zuccaro
Robert Zuccaro
11 months ago

Bidenomics means $5.00 for a box of name brand crackers. Gas prices will soon increase again thanks to tax laws against fossil fuel manufacturing included in his “Inflation Reduction Act”. My savings has not increased, I’m treading water here! Thanks, Democrats.

DanM
DanM
11 months ago

The 4th branch of government strikes again!! But don’t worry, they are all “experts” and follow “the science”. We now have the rise of AI and the machines to keep them in power. We the People are no longer in charge.

Barbara Witt
Barbara Witt
11 months ago

I have been a member & huge advocate of AMAC vs AARP, over 10 years & keep getting pop ups & questions to read articles all the time. Very annoying

Randall L. Beatty
Randall L. Beatty
11 months ago

This is the Dems along with Biden at work to stab the citizens of this country in the back with lies and they keep going after Trump to cover up what they are doing to sink this country.

Elizabeth
Elizabeth
11 months ago

We were a country of “listen, do and say”. Our forefathers listened when they were told that the war between the North and South was to end slavery. Even though there was a lot more involved in the reasons for the Civil war, many didn’t know what those reasons were and were ready and willing to “do” by giving their lives to fight for the freedom of many souls. Today, we are a nation of listen and say but do nothing, or very little to stop the injustice, lies, and criminal activities that is destroying our country. And while I’m at it, where is the reparation for the Americans who died to break the chains of slavery and free a people?
BYW, I was alive during WWII and weep daily as I pray for this country. My heart breaks when I think about the country my grandchildren will serve if the majority OF AMERICANS don’t wake up.

2004done
2004done
11 months ago

And when I thought obozo was bad, turned out his sock-puppet obiden is even better at being bad.

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