Not too long ago we issued a warning of the possibility of some money market mutual funds shutting down this year due to their inability to make money with low interest rates.

Now we learn that The Securities and Exchange Commission (SEC) has just passed a rule that could pose a much bigger threat.  In times of economic duress money market mutual funds will be allowed to prevent redemptions.

Three conditions will have to be met to allow this prohibition:

- The fund’s share price falls below net asset value as The ReserveFund’s net asset value did in 2008.
- The board of directors approve liquidating the fund.
- The fund notifies the SEC of the decision to liquidate and suspend redemptions.

If you think this might not happen, think again.  Another dip in our economy would again put the stock market into a downward spiral, which might be just the key to closing the spigot of liquid money markets.

Because of this rule change we urge you to be careful of how much cash you “park” in a money market…starting now.  The once ideal place to stash cash for short-term periods is no longer so terrific. 

 The SEC can freeze your assets but they couldn’t stop Madoff with numerous warnings from people in the know.  What a shame.

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