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Dissecting the Financial Collapse of 2007-2008

A Two-Year Flight to Quality

Considerable resources are being expended to develop new regulations to prevent a repeat of the 2008 financial crisis. It is vital these new regulations are appropriately focused to encourage liquid money markets during any future period of financial stress. In support of that aim, Treasury Strategies (TSI) has prepared this analysis of the money markets prior to, during, and following the financial crisis that peaked in mid-September 2008.

Much of the analysis of the financial crisis repeats the myth that a run on money market mutual funds (MMFs) was a proximate cause of the financial crisis. We believe this is incorrect and misdirects focus away from more significant causal factors. In fact, a $1.2 trillion run on non- MMF asset classes had already occurred during the 15 months preceding the chaos of mid-September 2008.

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