Could A Greek Default Destroy American Money Market Funds?

"...In 2008, it turns out that these money market accounts were--as was always pretty obvious--a lot more like bank accounts than mutual fund shares. The Reserve Primary fund held a lot of Lehmann Brothers commercial paper, which plunged close to zero, meaning that there were no longer enough assets in the fund to make all the shares worth at least a dollar.
This is known as "breaking the buck", and it was not the first time it had happened. But it was the first time in more than a decade that it had happened at a fund which didn't have enough money to top up the assets in the fund to bring them back to a value of $1.
Bigger investment houses had been quietly topping up their money market funds for month, but Reserve Primary was a smaller firm, and they didn't have the spare cash handy.
This triggered a run on the money markets, which the government really only stopped by a) passing TARP and b) guaranteeing money market funds. But as Matt Yglesias points out, Dodd-Frank stripped Treasury of the authority to do such a thing again. And now the money markets are exposed to a Greek default:

"But according to Landon Thomas, Jr.'s reporting for the New York Times (hat tip Tyler Cowen), there's a threat of this happening again. This time not with the failure of an investment bank, but with a failure of Greece to pay its debts. Apparently "as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks" including "French banks like Société Générale, Crédit Agricole and BNP Paribas" with significant exposure to Greek debt.

This time around, though, there may be a problem. As Brian Beutler explained last July, the Dodd-Frank Wall Street regulatory overhaul deprives Treasury of the legal authority that was used to backstop money market funds at the time. When Treasury officials were asked about this at a meeting with bloggers several months ago, they gestured in the direction of the idea that their resolution authority tools would help avoid a replay of the whole scenario. But Dodd-Frank obviously doesn't give the Treasury Department the authority to engage in an orderly liquidation of Greece. That means, as best as I can tell, that we're left to hope the folks running the European Union know what they're doing even though very little in their recent performance bolsters that hope."..."

at http://www.theatlantic.com/business/archive/2011/06/could-a-greek-default-destroy-american-money-market-funds/240397/#ixzz1PJlZQHGB