My first reaction after initial research is this: Money Market funds had no business buying or holding Lehman's commercial paper after March 15 (Bear Stearns’ failure). Even if it officially met their standards, the managers had to be aware of the huge risk. People who supply their money to the money market are agreeing to slightly more risk than a savings account. My position two days ago would have been that the account holders signed up for this risk, but now I'd say they have a case for negligence on the part of managers. Those funds should have begun a process to wind down exposure to Lehman on March 17. The money market is just not an appropriate place for Lehman to borrow. Yes, I'm sure this would have created a supply-demand imbalance and returns for the MM accounts would suffer in the short-run, and the managers probably thought their hands were tied, but this is what they mean by "picking up pennies in front of a steamroller." This aint rocket science.
I'm sure some would make the argument that the Bear Stearns rescue created an implied guarantee for Lehman commercial paper. More evidence that it is the government intervention that creates the ripple effect. So holders of Lehman paper pay the price for Bear Stearns' failure. There should have been some work done to re-price Lehman's debt. The MM funds could have communicated with Lehman and given them a chance to find a (more expensive) way to finance themselves. This could have happened in an orderly way and the risk could have been shifted to those more willing to bear it. Instead they all sat around doing nothing because they believed Uncle Sam and Uncle Ben would take care of them.