Hali hii baadaye ilisababisha mgogoro mkubwa wa fedha ambapo taasisi za kifedha hazaaminiani tena. Mikopo baina ya benki ilisimama kabisa. Tofauti kati ya kiwango cha riba ambacho Benki Kuu ya Uingereza iliweka na kiwango ambacho benki zilikuwa zikikopeshana (kiwango cha LIBOR) iliongezeka sana. Hili lilileta matatizo zaidi kwa sababu benki nyingi hukopa kwa muda mfupi ili kutoa mikopo ya muda mrefu. Ikiwa mikopo ya muda mfupi haipatikani, basi nani atabaki wa kuwakopesha? Benki Kuu, kama wakopeshaji wa mwisho, ilibidi kuingilia kati. Benki Kuu ya Marekani (Federal Reserve) na Benki ya Uingereza zililazimika kutoa fedha nyingi kupitia mikopo ya "dharura" ili kuzuia benki zilizokuwa zikianguka kuendelea kuanguka. Hatua hii haiongezi imani kwa benki wala kwa mfumo kwa ujumla. Haishangazi kwamba mswada wa hivi karibuni wa uokoaji wa benki nchini Uingereza ulijumuisha vifungu maalumu vya kuficha majina ya benki zilizotumia mikopo hiyo ya dharura, ili kuondoa "aibu" ya kufanya hivyo. Jambo lingine muhimu katika mgogoro huu wa fedha ni kwamba benki zinazoanguka haziwezi kumudu kudhoofisha mizania zake kwa kutoa mikopo hatarishi zaidi kwa benki nyingine "zenye shaka", kwa wamiliki wa rehani (wakati wa mdororo wa uchumi), na kwa kampuni zinazoelekea kufilisika. Hii ni mzunguko mbaya usiokwisha. Matokeo yake, benki zinahifadhi fedha zozote zinazoweza kupata. Hali hii haichangii kabisa kuleta ukuaji mkubwa wa biashara ambao serikali zinautarajia. Benki sasa zinahifadhi fedha, na matajiri wengi nao watafuata mkondo huo.

This situation then rapidly led to a full blown liquidity crisis where financial institutions don’t trust one another. Inter bank lending ground to a halt. The spread between what the Bank of England set as its interest rate, and what the banks would use to lend between them ballooned (the LIBOR rate). This created further problems as most banks borrow short term to provide long term loans. If short term loans are not available who is left to get money from? The central banks as lenders of last resort had to step in. The US Federal Reserve and Bank of England have been forced to provide masses of liquidity via “emergency” loans to keeping rapidly failing banks afloat. A position which hardly strengthens confidence in the banks or the system. It is no wonder that the most recent UK bank bailout bill included special provisions to hide the names of banks making use of emergency loans in order that the “stigma” of doing so was taken away. The other key factor in the liquidity crisis is that failing banks can hardly afford to weaken their balance sheets by making more risky loans to other “dodgy” banks, mortgage holders (in a recession) and failing companies – a vicious cycle. Consequently the banks are hoarding what cash they can get their hands on. Hardly conducive to encouraging the next big business upturn the governments expect. The banks are now hoarding cash, and many of the wealthy will be following them.