Abstract: To Regulate or Not to Regulate: Money Market Mutual Funds and the Soul of the New Deal System of Housing Finance, 1975-1982

Robert Henderson

Abstract

In this paper, I argue that the debate over the regulation of money market mutual funds in the mid-1970s to early 1980s revealed competing visions of the future of housing finance. One side sought to preserve the New Deal system of low-cost funds raised for mortgage investment by local depository institutions, while the other envisioned household savings and investment capital freely flowing to the highest returns, without special effort to allocate credit for housing. I further argue that regulators' decision not to limit money market funds when they first considered such regulations in 1976 constrained policymakers' options in responding to the thrift crisis of the early 1980s.