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Hearing of the House Commitee on Financial Services Subject: Recent Events in the Credit and Mortgage Markets

Interview

Date: Sept. 5, 2007
Location: Washington, DC
Issues: Monetary Policy Finance and Banking


HEARING OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
SUBJECT: RECENT EVENTS IN THE CREDIT AND MORTGAGE MARKETS AND POSSIBLE IMPLICATIONS FOR U.S. CONSUMERS AND THE GLOBAL ECONOMY

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REP. GREGORY W. MEEKS (D-NY): I'll take one.

Mr. Steel and Mr. Sirri, quick question, and I'm -- just the general market that I'm trying to find out about. Has the market reaction to holders of the subprime loans affected AAA-rated money market mutual funds, to your knowledge?

MR. SIRRI: Money market mutual funds, by definition, have to hold very liquid paper. Rule 2A7, which governs those funds, says at a minimum 95 percent of that has to be in the highest rating of the paper; the other 5 percent can be one notch lower. That's only a minimum. Besides that, the adviser has to go through their own credit work.

I think at the moment it's not had a substantial effect on that market. Were it to have an effect, we have rules in place that would allow advisers, affiliated purchasers to purchase some of that paper. In addition, our staff stands ready to work with those funds in case there's any dislocation in that market.

REP. MEEKS: So, so far it seems safe, because some have told me that that's -- some people are putting money in there as a safe haven and investing them into these --

MR. SIRRI: So far we've detected no serious problems.

REP. MEEKS: Great. Thank you.

Last question would be -- unless --

MR. DUGAN: I agree with Mr. Sirri.

REP. MEEKS: Great. Last question -- just I've been hearing this for a whole long period of time; I'd like to ask each of you, one answer: Are we -- you know, TV style -- are we headed for recession, given what's happening here? Are we headed for recession, in your opinion?

MR. STEEL: Our view at Treasury is that the economic growth that's been going on in the second quarter will continue with a positive trajectory into third and fourth quarter, and the economy seems strong.

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