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How you feel about the potential loss of a few pennies is different from how you might feel about the loss of a few billion pennies.

Somewhere between those extremes of a few cents and billions of dollars is the reality of money-market fund reform, and the way you feel about the proposals put forth recently by the Securities and Exchange Commission depends on which pile of pennies you choose to focus on.

As an individual investor, the whole thing is a matter of pennies on an investment that currently is struggling to generate that much in returns.

As a taxpayer, however, it’s about the billions of dollars you don’t want to see the U.S. Treasury laying out the next time investors worry about suffering a loss of pennies in their money funds.

To see why, let’s review the situation, the proposals and what it all really means.

Money-market funds are supposed to be boring, pain-free investments, a safe place to park cash.

Shares are priced at a constant $1; any interest the fund earns that would otherwise raise the price gets shaved off and reinvested to keep the value stable.

If the fund were to lose money — a situation that would typically result in the share price dropping — the fund sponsor typically steps in to make sure that the fund does not “break the buck.”

In 2008, the nation’s oldest and largest money fund, Reserve Primary, broke the buck in the wake of the Lehman Brothers’ bankruptcy.

The $64 billion fund was stuck holding $785 million in Lehman paper; the news started a run of investors fleeing money funds, a dangerously destabilizing event for the entire economy.

Investors who stuck with Reserve Primary ultimately lost three cents on the dollar, disheartening but — considering the positive total return many long-term holders experienced for years in the fund — not life-changing.

In fact, even after the loss, many investors did better in Reserve Primary than they would have in a fund that went trouble-free.

Small losses in safe investments are bad, but the bigger fear was economic chaos, the kind that occurred in the financial crisis of 2008.

As a result, the SEC in 2010 adopted rules requiring greater transparency and forcing money funds to invest in more liquid assets with higher credit ratings and shorter maturities.

The fund industry supported that move.

Fund companies wanted reforms to stop there; regulators didn’t.

Former SEC Chairwoman Mary Schapiro pushed for extreme changes, a move that cost her support and clout, particularly as it got bogged down.

Now, at long last, the agency has a watered-down proposal that may pass muster.

The first key provision of the proposal affects institutional prime funds (which invest in more than just government debt and account for more than $1 trillion in assets) abandoning the stable $1 value for a floating net asset value; this is where the big money moves are made — redemptions of the $1 million-plus variety — and if a fund gets caught holding bad paper and its net asset value drops, it would be too late for the institutions to beat the trouble out the door, curtailing the rush to the exits.

The second proposal gives fund boards — both for institutional and retail issues — authority to impose “liquidity fees” and “redemption gates” when there’s market unrest.

Effectively, investors would either pay a fee — which goes back into the fund — to get out in a timely fashion, or redemption privileges could be suspended for up to 30 days when the market is in trouble (under current rules, funds can suspend redemptions for a week).

The thinking here is that if you can’t get out — or would suffer a penalty that may be worse than what the fund could lose — you won’t try to go.

Ultimately, the SEC could push forward one or both proposals, which face a long journey starting with the just-opened comments period before they survive the arduous rule-making process.

None of it will stop whatever causes the next financial crisis — and there will always be another one — but it should create a stabilization mechanism to keep Uncle Sam out of the picture the next time trouble comes around.

The cost of that protection — saving the government the billions of pennies — could be a few cents in costs or execution for the average guy.

It may just be the compromise position necessary to get further reforms enacted.

“You will never eliminate the potential risk of a run, but you are getting pretty close to winnowing down the scenarios, while enabling money-market funds to continue on,” said Bob Kurucza, chairman of the financial-services group at Goodwin Proctor.

“Yes, it’s about protecting investors, but the worst situation we have ever seen still only cost investors a few cents, so what this is really about is making sure taxpayers will not be picking up any broken china during the next time there’s a financial crisis. … We’re a long way from knowing if it will work at that.”

Chuck Jaffe is senior columnist for MarketWatch. He can be reached at or at P.O. Box 70, Cohasset, MA 02025-0070.

Copyright, 2013, MarketWatch