Is there a set of trades/short sells that began this set of events?
Who stands to gain from what has occurred?
Yes. When Lehman went to bankruptcy, a money market fund (specifically, the very first money market fund) “broke the buck.”
ie, the NAV (net asset value) of their money market fund went from 1.00 to $0.97 as a result of about $700 million in Lehman paper that was now inaccessible.
Two more money market funds also broke a buck in NAV.
Money market funds have been marketed as a “cash alternative” for decades. Decades. And when they suffer principle loss, people get a real hard lesson, real fast, that only cash is a ‘cash equivalent.’ There are no substitutes for cash - real cash - in a market crisis like this.
No one stands to gain from the stamped in/out of money market funds. Not the investor, not the money market fund, not the issuer of the bonds in the money market fund, not even the IRS. It is nothing but sheer panic at the short term end of the yield curve.
At one point this week, 3-month T-bills had a negative yield — ie, people wanted to be out of everything else and into some instrument that was a) highly liquid and b) had the full faith and credit of the US government behind it. That’s 3-month T-bills. People were paying so much for these that for a brief moment, they were paying the interest, Uncle Sammy was getting money for free. That day, the 3-month T-Bill closed paying 0.04% interest.
As I keep telling people here on FR (and it just doesn’t ever seem to sink in) the place to be paying attention throughout this entire sub-prime and housing melt down is the bond market. The stock market is a side-show. The real action is in the bond markets around the world.
And on Wednesday and Thursday, the people in the bond markets were just short of jumping out of unopened windows.