One cast-iron rule in business is that companies don’t go bust by making a loss. They go bust when the money runs out. The same holds true when it comes to markets. Liquidity — the ease with which an asset such as a share can be bought and sold — is the markets’ currency, and when that freezes, they stop working.
Asset prices crumpled in the 2008 financial crisis because there were few buyers and masses of sellers. Intermediaries, who are supposed to keep markets lubricated by absorbing selling pressure, stepped back because they did not want to be left carrying the can.
Without liquidity, prices for even the most rock solid of investments collapsed. That, in turn, wiped billions of pounds off bank balance