[lbo-talk] Reflections on the current crisis 2

[Charles Brown]

"But if you think the risks of throwing millions out of work to make a political point aren’t worth it, then some sort of bailout of Bear was necessary. The firm wasn’t all that big (and the past tense is warranted, because it’s going to be absorbed by JP Morgan Chase), but it was connected to scores of other institutions, like banks and hedge funds. If Bear had gone under, it would have left those so-called counterparties holding an empty bag, and many would have probably followed Bear down the drain. And they could have dragged still others down. 

Aside from that direct effect, the blow to confidence would have been enormous, and without confidence, the financial markets just can’t operate. If Bank A doesn’t trust that Bank B is good for the money, it’s not going to trade with it. That would mean a freeze-up of normal business and consumer lending that would quickly throw the real economy into the tank."

^^^^
CB:  This description of this investment bank implies that banks  of various types are centrally important even in a "stockmarket'/anglo-american finance capital system. Seems that through chain reaction even "small" ones can be "big".