The U.S. Treasury Department on Friday announced it will use $50 billion to support money market mutual funds whose asset values fall below $1 in an effort to again contain the widespread financial turmoil in the U.S. markets. This latest government effort comes after Wall Street had a tough time this week with the increased vulnerability and downfall of major financial giants. “For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund - both retail and institutional - that pays a fee to participate in the program,” the Treasury said in a statement. U.S. President George W. Bush approved use of the Exchange Stabilization Fund to guarantee payments, Treasury said. The surprising move came as the Treasury and the Federal Reserve consider broad government intervention to prevent the collapse of the financial system. The Fed this week paid $85 billion to rescue insurance giant American International Group, and the financial systems were rocked by the bankruptcy of investment bank Lehman Brothers Holdings Incorporated. Such dramatic moves by the government are “probably a testament to how bad things really are when you look beneath the hood. The markets are frozen,” said Weston Boone, vice president of listed trade, Stifel Nicolaus Capital Markets, in Baltimore. News of the backstop for money market funds had instant impact in stock, bond and currency markets. The Treasury said concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets. “Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system,” the Treasury said. The panic in money markets began Tuesday, when the Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers.
