Reply #20: But you still have the problem of how to rescue the investment banks [View All]

[FarCenter]

and other non-bank finanacial institutions.

The commercial banks, with the exception of Citicorp and Wachovia did not fail and were not in deep trouble.

The institutions that failed or were failing were not commercial banks. They included --

- thrifts like Countrywide, WaMu, IndyMac, Wachovia because it had acquired Golden West

- investment banks like Bear Stearns, Lehman, Merrill Lynch, and Morgan Stanley would have been next to go,

- insurance companies like AIG and the mono-lines like MBIA,

- loan companies like GMAC, Chrysler Financial, CIT, (and GE Captial was getting shaky).

So with the downfall of these non-commercial bank financial institutions mortgages had dried up, short term credit was unavailable for businesses, state and local government couldn't get funds, and commercial loans and commercial real estate mortgages were unavailable.

There was no commercial banking crisis or bailout. The crisis was in the non-bank financial institutions, many of which were merged into commercial banks that were strong enough to carry them (e.g. WaMu and Bear Stearns by JPM), while other non-bank FIs were converted to commercial banks so that the Federal Reserve could provide them with liquidity in order to keep them afloat (e.g. GMAC).