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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

Investments in Money Market Funds

In a flight to safety, investors shifted from prime money market funds to
money market funds investing in Treasury and agency securities.
IN TRILLIONS OF DOLLARS, DAILY
$2

1.5 Prime
Treasury and
government
1

.5

0
AUG. 2008 SEPT. OCT.
SOURCE: Crane Data
Figure .

anecdotally that the dealers weren’t even picking up their phones. The funds had to
get rid of their paper; they didn’t have anyone to give it to,” McCabe said. 
And holding unsecured commercial paper from any large financial institution
was now simply out of the question: fund managers wanted no part of the next
Lehman. An FCIC survey of the largest money market funds found that many were
unwilling to purchase commercial paper from financial firms during the week after
Lehman. Of the respondents, the five with the most drastic reduction in financial
commercial paper cut their holdings by half, from  billion to  billion. This

led to unprecedented increases in the rates on commercial paper, creating problems
for borrowers, particularly for financial companies, such as GE Capital, CIT, and
American Express, as well as for nonfinancial corporations that used commercial pa-
per to pay their immediate expenses such as payroll and inventories. The cost of
commercial paper borrowing spiked in mid-September, dramatically surpassing the
previous highs in  (see figure .).
“You had a broad-based run on commercial paper markets,” Geithner told the
FCIC. “And so you faced the prospect of some of the largest companies in the world
and the United States losing the capacity to fund and access those commercial paper
markets.” Three decades of easy borrowing for those with top-rated credit in a very

liquid market had disappeared almost overnight. The panic threatened to disrupt the
payments system through which financial institutions transfer trillions of dollars in