But aside from raw, adrenaline induced hysteria, why? Via Brad DeLong, Yves Smith quotes extensively from the Financial Times today to explain sort of what happened. Frankly, I still don't really get it, but this seems to be the key paragraph:
[The] most pernicious problem is that it is becoming clear central banks cannot resolve the biggest problem a lack of clarity about valuations in structured credit markets and the almost complete loss of confidence that is infecting even the biggest and most diversified of conduit-type programmes.So the bottom line is that ordinary commercial loans have increasingly been rolled up into a variety of "structured investment vehicles," and thanks to ripple effects from the subprime meltdown nobody has any confidence they really know how to value SIVs anymore. So they just stop issuing them, and that in turn halts the ordinary commercial paper market in its tracks. Apparently the panic started in Europe and then quickly spread to the U.S.
At least, I think that's the explanation here. Read the whole thing yourself for more. If you're a high finance type and want to explain further in comments, please do. It's still all kind of murky to me.