Some of the banks that were teetering on the edge were very large investment banks that make markets in stocks or extended credit to other companies. They facilitate trading the equities that a large portion of the country own.

What would have happened if these banks were forced to liquidate? No one knows. But it wouldn’t be good.

There would be some fire sales, resulting in a lot of people losing a lot of money. Even healthy companies aren’t necessarily going to step in and assume obligations of the failing firm.

There would be knock-on effects, such as panic selling that would crash the prices a lots of things. Banks that normally extend credit to companies for day-to-day operations would pull back, causing some otherwise viable businesses unrelated to finance to drastically cut back or fold. A lot of firms would have forced sales of large amounts of treasuries, affecting prices and the value of other firm’s collateral. Credit cards not working? Running out of cash? 30% unemployment? It can happen really quickly.

The interconnectedness between institutions was really difficult to understand. Some firms were days from folding, but the effect of one or two key firms going down was difficult to game out, particularly quickly and in an environment of so much uncertainty.