Let me begin with the most prosaic of observations: The events of 2007-09 will be remembered not as a banking crisis, but as a financial crisis. Neither the origins nor the transmission of stress were limited to the traditional banking system of commercial banks and thrifts. While Wachovia and Washington Mutual failed, and other large depository institutions survived only because of government support, the more spectacular failures were those of nonbank financial firms--including American International Group (AIG), Bear Stearns, Lehman Brothers, and the government-sponsored enterprises Fannie Mae and Freddie Mac. Repurchase agreement (repo) and commercial paper markets depended on government liquidity to continue operating, as did money market funds.
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