Quietly, the Fed Has Seduced $1 Trillion a Day into the Best Game in Town – Its Reverse Repo Facility

by Pam Martens and Russ Martens
Wall Street on Parade

During the financial collapse of 2008, money market funds found themselves holding toxic paper that no one wanted to buy. In order to stop panic runs on money market funds, on September 19, 2008 the U.S. Treasury Department issued a statement indicating it would guarantee more than $3.5 trillion in money market funds.

As COVID-19 concerns took root in March of last year and the stock market plunged, the Fed launched another bailout program for money market funds on March 18, 2020. The program was called the Money Market Mutual Fund Liquidity Facility (MMLF) and was run out of the Federal Reserve Bank of Boston.

Going forward, the Fed does not want to be in the position of having to bail out more privately owned money market funds. So the Fed has been seducing money market funds and other financial institutions to use its Overnight Reverse Repurchase Agreement facility for the assets they need to keep both safe and liquid. The Reverse Repo facility is known internally at the Fed as the ON RRP.

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