Money market funds are generally designed to be the functional equivalent of a bank account: short-term vehicles where you park cash you aren't using at the moment. Investors are supposed to be able to pull their money out at any time. That meant that all the funds, sound or not, were vulnerable to a run. And virtually any fund that experienced a run would "break the buck" because while these funds are perfectly safe and liquid in normal circumstances, no one could dump a billion dollars worth of securities on the market without seeing the price of those securities plummet. Since funds definitionally try to hold their asset base near a dollar a share, and distribute the yield, there was no gigantic cushion to pad the sales.

The runs meant that all the money market funds were in the same boat: everyone wanted to sell and hoard cash in case of a run. No one wanted to buy. Once busted funds had gotten rid of their very short paper, they were stuck with the weeks/months maturities, which were virtually unsaleable. Unless the parent institutions make your investors whole the only thing you can do in that situation is distribute the assets in kind, to investors who can't sell them any more than you could.

Ultimately, despite last week's bailouts, no one wanted to hold financial company paper. Unfortunately, as I understand it that paper made up the bulk of the money markets, which is hardly surprising given the volume of trades they do (did) every day.

Banks have tens of billions of debt maturities to refinance in the coming months. The overwhelming majority of it will be good even under distressed circumstances--unless they can't roll any of it over. At that point, they experience the same problems you would if your credit card company pulled your credit line and demanded you pay back everything you owe them.

No doubt some of my readers are rubbing their hands and saying "Exactly what should happen to people who carry credit card balances!" And I'm sure that among you there are people who pay cash on the barrel for everything, having never taken out any loan for a house, an automobile, an education, a personal financial crisis. These people never even use an American Express Card, which is, of course, a short-term loan. They also do not work for companies that borrow money to buy capital equipment or finance expansion, and their firms do not experience any mismatch between their payables and their receivables. Those people should stop reading now, because I'm pretty sure the Amish aren't supposed to use the internet.

The rest of us live in a world that is created and run by institutions that amass capital from millions of people and concentrate it in areas where it (usually) makes people better off. I'm particularly confused by conservatives who claim to hate fractional reserve banking, duration mismatches in the financial system, and easy credit/bankruptcy. If you think more deeply about it, there are three reasons why this opposition is silly: