Bye Bye Banks and Wall Street

[Alex]

They could halt trading but that would be a disaster beyond words. Nothing makes people want to remove money from a marketplace faster than being told that they may not be able to get it out when they want it.

That's what brought down WaMu. WaMu's problems were significant but they were not immediate in nature. Until people began getting worried and withdrew $16 billion from deposit accounts in a week. Then once WaMu was out of the way the press could focus on Wachovia and the fear moved to them.

The same would happen if the markets were closed. As soon as they re-opened there'd be a huge rush to withdraw money from them in case they get closed again. It is one thing to temporarily close them in response to an external crisis such as 9/11 where a cool off can work. People don't know what the implications are and react out of blind panic that can cool down with a day or two consideration (plus, the infrastructure literally had to be checked).

But if the markets are closed simply to prevent people from responding to events in the marketplace then you'd see a global sell off. It would become a self-fulfilling prophecy of humongous proportions.