Robert Pozen writes "Wading into money-market funds? Risk-return trade-off makes getting wet worth it" in The Washington Post. He says, "Breaking-the-buck" has "happened only twice in the 40-plus-year history of money-market funds.... No one wants a third fund to break the buck, so regulators are considering changes to the rules that govern money-market funds to further reduce their risk. They're looking at two types of proposals: moving to a floating share price (no longer stable at $1 per share) or requiring that funds hold a cushion against losses. Either of these could well hobble money-market funds to the point where they are no longer attractive to investors or borrowers. A floating share price would make money-market funds less attractive to conservative investors who want to earn interest on short-term cash without risking losses. At the same time, requiring funds to hold some sort of a cushion against losses would increase the cost of managing them.... Rather than implementing a floating share price or establishing a loss cushion, money-market funds should change the way they handle large redemptions by institutional investors -- redemptions that played a major role in the only two instances when a fund broke the buck.... It's critical for both investors and bond issuers that money-market funds remain a viable alternative to banks.... Yes, money-market funds have a modest degree of risk, but their advantages offset it. And remember that, in the worst case on record, when the Reserve Primary Fund broke the buck in 2008, shareholders lost only 3 cents on every dollar. Not bad for the most severe financial crisis since the Great Depression."
