Just thinking about this and please let me know your comments as to whether you think this is possible of not.
Let's say in the next few weeks some of the other banks start to falter, AIG is unable to shore up the $70Bn in financing they need, the Federal Reserve has extended the range of collateral that can be used to borrow capital (risky/toxic/low quality assets) and it starts causing a ripple effect that hits the commercial banks as well.
The Fed seizes the collateral and realizes that there is no market for it and it is pretty much worthless and they take the hit and pass it on to the taxpayers, Open mkt ops, sell bonds, etc.
But there's a bit of a widespread panic being among people that the FDIC may not be able live up to its duties and people run to the commercial banks removing their funds (as they did during the Depression).
The system starts to fall apart and we're in a downward spiral. The people that were unable to get their funds out before everybody are screwed because there are no funds left
with the bank and they are essentially broke.
I'm sure there are plenty of inaccuracies in this scenario and I'm sure that you will pick them out, but even with the corrections, what are the possibilities of this happening if say Citi or JPM start be affected?
