What happened in 2007 and 2008 was a bank run through this repo market. A bank run occurs when all the depositors in a bank want their cash back at the same time and the bank doesn’t have enough cash on hand to give it to them. When this happens, banks either borrow money to stay liquid and halt the panic or they go under. The repo market emerged in the 1980s when traditional banks lost market share because of a process called “disintermediation.” Banks, as intermediaries, traditionally sit in the middle of someone else’s prospective business, connecting borrowers and lenders, for example, and charging fees for doing so. Before disintermediation, banks engaged in what was often called “3-6-3 banking”: they would borrow at 3 percent, lend at 6 percent, and hit the golf course by 3 p.m. It was safe, steady, and dull. But as financial markets became more deregulated in the 1980s, large corporations began to use their own cash reserves, lending them to one another directly—they disintermediated—bypassing banks and squeezing bank profits.

Mark Blyth, Austerity, loc. 78