post-mortem of a 2008 bank run

Lehman Brothers filed for Chapter 11 bankruptcy on 15 September 2008.  in Janaury 2009 Paul Kanjorski (chair of US Senate capital markets sub-committee) recounted the effect three days later: 

“on thursday [18 Sep 2008] at about 11 oclock in the morning the Federal Reserve noticed the tremendous drawdown of the money market accounts of the US to the tune of $550bn - was being drawn out in a matter of an hour or two. The Treasury [sic] opened up its [discount] window to help, they pumped $105bn into the system and quickly realised that they could not stem the tide, they were having an electronic run on the banks. They decided to ... close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there. That's what actually happened.  If they had not done that their estimation was that by 2 oclock that afternoon $5.5tn would have been drawn out of the money market system of the US, would have collapsed the entire economy of the US and within 24 hours the world economy would have collapsed. Now we talked at that time about what would happen if that happened - it would have been the end of our economic system and our political system as we know it, and that's why - when they made the point we've got to act quickly - we did.”

Kanjorski is quite wrong on the prognosis for the 'economy' of a collapse in the money system.  He is conflating the 'economy' (people exchanging stuff & services with each other) with the money system (fiat money created by fractional reserve banking in the form of debt, and long term government deficits).

He is quite right to imagine that a sudden collapse the money system (in the form of massive and sudden credit destruction) would have ended the political system as we know it - but not the economy.

He added later in the interview

“If you don't have a banking system you don't have an economy.”

Again he is wrong.  If you don't have a banking system - you don't have a banking system, you still have an economy.  We are the economy, money is not the economy.