Jeffrey Snider explains their role as the new prime financial collateral, here, and why Quantitative Easing slowed the velocity of this new money by reducing their supply:
It is operationally no different than a 1930's bank experiencing a run on its stock of national currency. The lower that level of real money gets, the shakier the perception of the bank becomes, the more counterparties continue the cycle of real money removal - physical dollars in 1930, rehypothecated collateral in 2011. The perception of risk becomes reality, and this may be exactly what is playing out today as banks with questionable exposures to PIIGS have seen their abilities to operate in wholesale money markets dwindle into this current crisis.
