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Fed OKs Funds For Ailing Mutual Funds

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The Associated Press

The Tampa Tribune

Published: October 22, 2008

WASHINGTON - The Federal Reserve on Tuesday introduced a program to finance the purchases of assets from money market mutual funds as the government continued to search for ways to battle a severe credit crisis.

"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests," the Fed said.
JPMorgan Chase & Co. was chosen to run five funds that will buy certificates of deposit, bank notes and commercial paper from money market mutual funds. The Fed will lend up to $540 billion to the five funds to support the effort.

Fed officials said that about $500 billion had flowed out of prime money market funds since August as investors began to worry about their ability to redeem their investments. On Sept. 18, the Treasury Department announced it was tapping a $50 billion Treasury fund to provide guarantees for the assets in the funds. The Fed initiative is designed to bolster the funds.

Meanwhile, the Treasury Department announced Tuesday that it had selected two accounting firms to help manage the government's $700 billion rescue program for the financial system. The department selected Pricewaterhouse Coopers to be an auditor for the program that will purchase troubled assets. Ernst & Young was chosen to provide accounting support.

Those announcements came as the House Financial Services Committee held a hearing Tuesday in which experts discussed what needs to be done to improve the government's regulatory structure. The aim is to find a way to better manage the financial system to prevent a crisis.

Democrats in Congress also were pushing ahead with efforts to assemble an economic stimulus program. That effort got a timely endorsement Monday from Federal Reserve Chairman Ben Bernanke.

Wall Street pulled back Tuesday as investors worried that companies' forecasts signal little easing of the weakness gripping the economy. After logging sharp gains in the previous session, the Dow Jones industrial average fell 2.5 percent, while the Nasdaq composite index lost more than 4 percent after a weak showing by technology names.

The Dow fell 231.77 to 9,033.66. The Standard & Poor's 500 index fell 30.35, or 3.08 percent, to 955.05. The Nasdaq composite index shed 73.35 to 1,696.68.

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