Money market funds have been an unambiguous benefit to both individual and institutional investors, as well as to non-financial corporations and municipalities in need of short-run financing.

But now the very existence of the $2.6tn money fund industry is under attack. Both present Federal Reserve chairman Ben Bernanke and former chairman Paul Volcker have called for stronger oversight of money funds because of their destabilising potential. And Treasury Secretary Timothy Geithner recently urged the Financial Stability Oversight Council to push forward new rules to rein in the industry as essential for financial stability.

Some history will illustrate the potential problem posed by money funds. Four years ago the US Treasury took the unprecedented step of guaranteeing the value of money funds to stop a run on the industry and a potential disruption of the ability of non-financial corporations to finance their short-term needs.