When market conditions deteriorate, everyone rushes to close their positions, exacerbating market strains further, hence the fall in prices. The second dimension is the risk of liquidity mismatches when short-term funds cover long-term assets. Although this is fundamental risk of the banking business, it seems to have been underestimated.
Before the crisis, market participants assumed that CP and interbank markets would always function and would provide access to sufficient liquidity. This led to the build-up of large liquidity mismatches, for example in SIVs. They also believed in the valuation of AAA-rated assets and assumed little risk was involved.