They started calling the governor early in the morning. The day before, a bill to restrict money-market funds had passed through the Rhode Island legislature like a boulder headed downhill. Now the bill sat in Gov. J. Joseph Garrahy's in-box, a signature away from becoming law.
But money funds rallied their shareholders to the cause. By the end of the day over 900 phone calls had jammed the capital switchboard. According to one industry source, even the operators were urging the governor to veto the bill.
On May 14, he did. Money funds had escaped from their closest encounter with legislated restrictions.
People love their money-market funds. Never mind that almost one-half of fund assets are held by institutional investors, or that the funds may drain money from shaky savings- and-loans. Any politician that tries to meddle with them risks having his office torched by angry constituents.
"Are you kidding? We've gotten more mail on this than anything else," says the press secretary of a congressman who supports restrictions. "they're afraid we're going to take their little earnings away."
Capitol Hill has been deluged with an estimated 500,000 pieces of mail on money funds.
"We've received 8,500 letters on money-market funds," says a spokesman for Sen. Paula Hawkins (E) of Florida. "About 100 percent of it is against regulation."
Much of Senator Hawkins's mail comes from retirees worried about their financial future.
"Five-and-a-half-percent return on passbook savings isn't enough to keep up with the price of milk," reads one. "How do you think I can pay the mortgage without a fair return on my savings?" another says.
Bills for some form of restrictions on money funds have been introduced in 11 state legislatures. None of them have passed. Congressional hearings were held on the subject throughout the spring, but staff members say the issue has stalled on Capitol Hill. Too many congressmen have decided it is the political equivalent of dropping a sparkler in a gas tank.
Were the letters a major factor?
"Absolutely," says a money fund official. "Public opinion has been very effective at both the state and federal level."
Much of the mail was elicited by individual funds and trade organizations stirring up their shareholders. Many money funds have stuffed their quarterly statements with flyers urging action. Donoghue's Money Fund Report of Holliston , Ma 01746, a fund newsletter, has printed a form letter for subscribers to copy and mail.
In March, Walter Fauntroy, the delegate from the District of Columbia, introduced a bill in the House that would set rate ceilings on money-market funds. First Variable Rate Fund, based in the district, immediately sent a special letter to all its Washington resident shareholders, urging them to write Mr. Fauntroy. It also included information on similar bills in its regular quarterly mailing.
Fauntroy eventually requested a meeting with the director of First Variable to explain his position. He remains a leader in the attempt to legislate restrictions for money funds.
At congressional hearings on the funds, the only witnesses to testify in favor of regulations have been banking and thrift officials -- and Federal Reserve Chairman Paul Volcker, who recommended giving the Fed power to regulate funds offering checking- like services.