Consider the unexpected bankruptcy in 1970 of Penn Central, a major railroad that was an important issuer of commercial paper. The Friday before its collapse, Penn Central was seen to be in financial trouble, but the company was expected to receive a government loan guarantee that would keep it afloat. Over the weekend, it became evident that no government support was forthcoming, and Penn Central declared bankruptcy. Investors woke up Monday morning with commercial paper that was essentially worthless. Penn Central's failure raised doubts about the integrity of the commercial paper market in general. A predictable flight to quality ensued: Treasury yields declined, and corporate debt yields rose.

The financial innovation in the Penn Central example was the use of commercial paper to substitute for bank loans. Commercial paper had become an important source of funds for large firms in the 1960s. But risk-management systems for commercial paper remained untested until the recession of 1969–70. The Penn Central bankruptcy was a rude awakening that these systems were inadequate.