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The problem is that the issuers of the commercial paper are in some (say many of them) cases themselves impaired (say structured investment vehicles, etc.) and the commercial paper market has itself become problematic. (Say I can't find buyers for the paper that I need to sell to refund what I've already got outstanding there.)
If you want to see more look at the Fed's web site (www.federalreserve.gov/releases/cp/) and look at the drop in financial paper outstanding and the spread in rates required to move the product. Though not frozen that market surely isn't liquid, and if issuers can't sell new they have only the reluctant banks (who have their own problems) to fall back on.
I'm not a pessimist either, but the reality of the situation does cause one pause. Maybe it's time for all of us to reread William Simon's (ex Treasury head) "A Time For Truth."
Richard Funkhouser DH wrote:
Me too. Personally, I don't share the doom and gloom about money market funds going below par but maybe I'm an incurable optimist. ;) Aside from the sub-prime real estate market, I think we've see worse times in recent years and MM funds did just fine through all that. Most MM funds, IMHO, are more exposed to commercial paper (stock market) than real estate.