golfgal, I’m still unclear on how a BSC bankruptcy could bring down the whole banking system. You seem knowledgeable in this area so maybe you can provide more details.
Here’s my confusion: BSC is not a bank. Its not regulated by the Fed and under normal circumstances, the Fed isn’t supposed to be lending money to BSC or JPM. Roubini refers to this as the shadow banking system. In any case, we’re not talking about a real bank that’s threatening to go under. This is really about an investment firm that’s being bailed out.
My question is, how does BSC going bankrupt lead to a run on a real bank, like say, Bank of America? Is there some direct link where BSC’s demise would immediately bring down Bank of America as well? Do those kinds of hard links really exist? Or is the cause and effect more foggy or just plain unpredictable? Is this about saving the real banks at all? Or maybe the Fed is afraid that there will be a run on all the investment banks … so this is a way of assuring everyone that investment banks are still “safe”?
