Stocks Soar as Government Dips Into Depression-Era Account

Howard Schneider, Neil Irwin and Binyamin Appelbaum
The Washington Post
September 19, 2008

The U.S. government took dramatic steps today to restore confidence in money-market mutual funds, generally considered one of the economy’s important safe investments, whose health had come under threat this week.

The Treasury department announced it was dipping into a Depression-era account to offer insurance similar to that provided for cash accounts in banks by the Federal Deposit Insurance Corp. The insurance fund is limited to $50 billion and meant to be available only for a year. In addition, funds that participate will have to pay a fee — potentially undercutting the slim returns that such funds earn.

With roughly $3.5 trillion resting in such funds — more than half the value of deposits held at U.S. banks — a run against them could prove catastrophic. Market funds are major buyers of short-term debt, which is issued by financial companies and other corporations to finance day-to-day activities.

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