Breakng the buck for money funds is the problem

Mark Twain - "I am more concerned with the return of my money than the return on my money"

Twain must have been a holder in a money market mutual fund and was worried about breaking the buck. The money market funds are the shadow banking system. This is where corporate lending is done on a grand scale through the commercial paper market. This is also where banks get a lot of funds, yet the potential for failure in the money market area is what is driving the movement to government Treasury bills.

Assume a bank takes a loss on a loan. It will be taken out of reserves and earnings. What happens if the money fund takes a loss? It potentially breaks the buck and there will be a potential run on the fund. The money market fund does not have a reserve. It may not have the capital to offset a loss if there is a systematic failure; therefore,the fund builds a Treasury cash reserve and waits for normalcy to return. The result is the freezing of the commercial market.

The bail-out may or may not solve this problem and there has been little discussion of how we are going to link the bail-out to the money fund issue. What is the first step to a solution in problem management? Determining who or what has the problem