Well, you need buyers for one. And those buyers need cash. (And where do they get the cash... the repo market)

Banks don't want cash. Cash sucks in terms of value. It's liquid, but it is constantly losing value due to inflation. Assets typically appreciate in value, so it is in the best interest of banks to maximize assets and minimize cash. You trade liquidity for value/earning potential. (Just thinking about opening a certificate of deposit at a bank compared to a money market or savings account. Lower liquidity == Higher interest rate)

The repo markets exists so that banks don't have to hold tons of cash. If it didn't, banks would need TONS of cash on hand for all of their transactions, and it would significantly devalue them.

So there's not enough cash in circulation for banks to sell some of their assets marked down?

In some sort of bad event won't the be unable to pay back the one day loan and so the fed is just helping them juke the required liquidity ratio?

It's not a matter of cash in circulation. It's just against the incentive of banks to hold any more cash than necessary.