Credit crunches are not like other financial crashes--for example, those that occur from time to time in stock markets or on a commodity exchange. Credit permeates every area of the financial system and the real world of everyday business. It is impossible to operate without a bank account and lines of credit, no matter what the size of the organization. When credit dries up and trust in banking is withdrawn, no one can work normally, and that is why it is so important for government to step in and stabilize credit crunch situations early and decisively. For over a year now, lending between banks has virtually completely dried up and so the "wholesale" bank-to-bank market for cash that underpins all commercial banking, known as the "money markets" have frozen. In these situations, banks can only use funds and deposits available from the central bank in their country or taken from their individual retail or commercial depositors and investors. So, central banks, mainly the Federal Reserve of the U.S., the Bank of England, Bank of Japan and the European Central Bank, have been actively providing money for the wholesale money markets in the past year by pumping funds from their countries' treasuries into the system.

Unfortunately, this solution simply hasn't been enough, and so in the first week of September 2008 we began to see the complete failure of wholesale banking, manifested in U.S. investment banks simply running out of money. Having no retail depositors (the definition of investment banks), there was now not enough money in the central banking system to keep them going. One after another, they needed to be rescued. Bear Stearns (in March 2008) and Merrill Lynch found new owners; Goldman Sachs and Morgan Stanley need to be completely restructured and re-financed as commercial banks. I can imagine the surprise of many investors to see the headline in The Wall Street Journal that these two investment "banks" were to become real banks. (4) Lehman Bothers was allowed to fail when no commercial bank buyer could be found