You're assuming that if banks "went bankrupt" they would stop functioning altogether, which they, of course, wouldn't. Transfers of money would still happen just as before, paying and receiving, just as before. And even some lending would still occur -- it might just be more conservative.
I didn't bring up BK, that wouldn't be an option and that wasn't what was happening. The banks suddenly realized that most among them were insolvent, and no longer trusted each other. You ever done importing? Imagine no more letters of credit. Imagine if BOA won't clear a check from Citi.
Credit markets are important, but in the short term -- e.g., commercial paper, there are other resources than banks.
Who do you think handles commercial paper. It was frozen.
When you say "No import, no export" -- that's a bit of an exaggeration. There are still motivated sellers and buyers, and the fact that credit markets are disrupted does not imply they can't find ways to make business happen.
Yes, it does. And when the banks collapse, you think people are going to trust each other?
There is a very good reason the Fed and Treasury panicked. |
