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:
1) Outlawing it would require massive market interventions. The vast majority of people want to borrow long and lend short. Keeping them from doing so would mean not only outlawing the current banking industry, but giving the government sweeping powers and budget to make sure that no one synthetically recreates a duration mismatched position. Human ingenuity on this front is endless--witness the acrobatic contortions of Islamic finance to get around the bans on, yes, lending money with interest.
2) Credit and easy bankruptcy serve as a substitute for government intervention. In a developed society that will not (however you personally may feel) stand by and watch its members starve, income fluctuations have to be dealt with somehow. If people can't borrow money to smooth their consumption, they'll demand that the government provide that service instead.