Over the past week or so, all eyes have been on Bear Stearns, as it suffered from a "run on the investment bank." It came down on the basis, as I have heard, of rumors. If I am not mistaken, other investment banks are in much the same position. By the very nature of their business, they are not liquid, and so a "run on the bank" puts them into crisis - and either bankruptcy or buyout.
When I look at it, I am astounded by how many other industries are built around investment banking. Many real estate and service industries exist to support the investment banking industry, and a great many others derive secondary revenue from that industry. So if one bank can disappear in the course of a week, the effects will necessarily be wider than the investment banking industry.
The point is that the financial markets, with investment banking as a very important element, are a house of cards. They rise and fall on investor optimism and pessimism, and their fall will have consequences far beyond the financial markets.
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