Re: Not liquidity but solvency
In 2008 and 2009 I think it was a mix of liquidity and solvency.
Some banks had terrible assets (Lehman, AIG) but many had solid investment grade long term assets funded (stupidly) with short term loans (commercial paper).
Unfortunately no one really knew where the bad assets were hiding so everyone stopped lending short term until they worked it out. Good banks, including the better rated AA banks, were extremely close to going insolvent. The government stepped in to provide last minute liquidity (or guarantees).
Bank bashing is now not entirely fair (I'm a banker so obviously am biased) because Governments have responded with extremely strict regulations. Banks now fund their assets with a prescribed mix of deposits, short term debt, long term debt and equity. They even have to set aside a loss reserve in case the loan goes bad (no surpises that this has to be deposited with the government!). Hedge Funds and Pension Funds do none of this and therefore enjoy a major cost advantage of banks. Banks are now in a structural decline including, unfairly, the good ones.
Biting the hand that feeds IT
