We now have a clearer idea of the MMMF guarantee plan. The now-announced idea is not (as I previously imagined) to guarantee that shareholders will get what their shares are worth. It is to guarantee that they won't get less than $1 even when their shares are worth less than that (evaluated in the usual way by dividing a fund's asset portfolio value by the number of shares) and thus the fund would have to "break the buck".

Should this plan go forward, the next time you go into a bank that has a desk for its mutual-fund affiliate, you may as well take along a Sharpie and cross out the warning that used to read: "Notice: These funds are not insured and may lose value."

The Treasury seems to have overlooked the fact that many MMMFs free of buck-breaking risk are already available. They are the MMMFs that invest only in default-risk-free Treasury bills. No such fund has ever had to break the buck. Many of the worried MMMF shareholders who in recent days have cashed out of other MMMFs have already moved the funds into such T-bill MMMFs.

The $1-floor guarantee has value to shareholders who want a T-bill MMMF's safety but aren't willing to accept its lower yields to get it. But why should we indulge such a preference to eat one's cake and have it too at someone else's expense?

This is much like the old question: why should we have FDIC coverage on bank deposits above $10,000, when any saver who wants a government-guaranteed haven for $10,000 can simply buy a T-bill?

The Treasury plans to charge covered mutual funds a fee, size yet unspecified. Why not let the market determine the proper price of safety, by simply letting MMMF investors sort themselves between T-bill MMMFs and other funds that invest in somewhat riskier securities? If the Feds set the guarantee fee on MMMFs too low (and they have no way of getting it right), then the guarantee system will foster moral hazard. Much like insured bank depositors, insured MMMF share investors will gravitate toward funds that carry riskier portfolios, because the upside potential remains while Uncle Sam absorbs the downside risk.

Bloomberg.com quotes one commentator as saying: "This has got moral hazard written all over it, but as has been the case throughout the crisis, now is not the time to worry about moral hazard. " On the contrary, the moment when new guarantees are being proposed is exactly the time to worry about moral hazard.

No word yet on what new portfolio restrictions will be imposed on participating funds.