Calculated Risk points to a very troubling development; the discount rate spread is now higher than it's been, at the very least, in a very long time. Worse than after 9/11, when markets were very shaky to say the least. Nemo, a frequent commenter on Calculated Risk, explains what this means here:

Suppose you run a business with $10 million in assets. Only assume most of those assets are manufacturing equipment, accounts receivable (i.e., money you are owed but have not yet been paid), and so forth... Not cash.

Now it's mid-month and time to pay your employees. The typical employee is not expecting to get paid with a lien on a lathe, or an IOU payable when your customers pay... The typical employee wants cash.

Now, you could sell some of your manufacturing equipment. But it's all in use; business is good!

So you head to the capital markets and say, look, I just need a 30-day loan so I can make payroll. I have all these great customers who will pay me later this month, plus worst-case I have all this equipment as collateral, so I am a very very safe risk. What interest rate will you give me?

Well, the market where you do that is called the Commercial Paper market, and it is -- er, was -- a $2 trillion market. The interest rate you can get is almost as low as a savings account or a Treasury bill would pay. That's what it means to say you are a very safe risk. And money market funds all over the world will be quite happy to loan you the money for 30 days to earn a little more interest than a T-bill.

And then every month you repeat the process, because you would rather have your capital tied up in productive equipment rather than in cash. You just borrow for the next 30 days in order to repay the loan from the previous 30 days. This is called "rolling the paper".

And continues it here:

Now, in recent years there has been an explosion in other kinds of commercial paper. Banks created these off-balance sheet entities called "SIVs" which buy mortgages and issue CP. So instead of CP collateralized by accounts receivable and capital equipment, this CP is collateralized by mortgages. And money market funds lapped it up, too.

Except now the MM funds are a little worried about the quality of the collateral, for some reason, so they are taking money OUT of commercial paper and plowing it into Treasury bills. That is why the yield on the 13-week T-bill has collapsed; insane amounts of money has been taken out of CP and put into "perfectly safe" Treasuries. You know, just until "this whole thing blows over". Better safe than sorry. Etc.

By some sort of "contagion" mechanism that I do not really understand (animal spirits?), this is affecting the CP market for real businesses. This is where they get their working capital to do things like, oh, make payroll. If these CP numbers continue their current trend for much longer, real companies -- not banks or brokerages or mortgage lenders, but real companies in the real world -- will have to start liquidating real assets and/or firing real people.

And this is the real problem in the entire crisis. MEW affecting consumer spending remains pure speculation, and financial firms writing down billions makes for great CNBC coverage, but commercial paper is the mechanism by which this crisis threatens the real economy, right now, today. It is by far the most important thing to monitor, IMO.

Nemo has his/her own page here.