How The Covid Shock Nearly Destroyed The Financial System

How The Covid Shock Nearly Destroyed The Financial System

Why the Federal Reserve had to step in again to sop runs on money market mutual funds and keep the financial system from imploding.

Topics covered include:

  • What are the differences between shocks and vulnerabilities
  • What are the four main vulnerabilities the Federal Reserve monitors
  • How deleveraging and demands for liquidity lead to market stresses
  • What are the types of money market funds and how were they impacted by the Covid 19 shock
  • How was Treasury bond trading impacted by the Covid shock
  • Why the Federal Reserve stepped in to stop the market contagion from spreading
  • What are the downsides to central bank interventions
  • What individual investors can do to protect against future shocks


Thanks to Mint Mobile and Truebill for sponsoring the episode.

For more information on this episode click here.


Show Notes

President’s Working Group on Financial Markets Releases Report on Money Market Funds—U.S. Department of the Treasury

Report of the President’s Working Group on Financial Markets: Overview of Recent Events and Potential Reform Options for Money Market Funds, December 2020—U.S. Department of the Treasury

U.S. Credit Markets Interconnectedness and the Effects of the COVID-19 Economic Shock by S.P. Kothari, Dalia Blass, Alan Cohen, Sumit Rajpal, and SEC Research Staff—U.S. Securities and Exchange Commission

Financial Stability Report November 2020—Board of Governors of the Federal Reserve System

How Vanguard Overhauled a Prime Money Fund by Bernice Napach—ThinkAdvisor

Overnight Index Swap by James Chen—Investopedia

Cash Viewpoint: What do Variable Rate Demand Notes do for Your Money Market Fund—Invesco

Related Episodes

270: Repo Rates Soared—Here’s Why It Matters

291: How To Survive the Coronavirus (COVID-19) Shutdown

305: Are Banks Safe?


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