Quote Originally Posted by Dayuhan View Post
A financial firm's assets are in its investment portfolio. If the financial firm is stupid and has a portfolio full of hot air, it will deflate at the slightest puncture. The cause of the deflation is not the puncture, it's the gaseous nature of the portfolio. If the portfolio is solid, a puncture won't matter.

It is true that most US financial firms had pumped up their books with volumes of hot air, which left them insanely vulnerable. The eventual explosion has to be blamed on the decision chain that produced that vulnerability, not on the specific events that caused the deflation. Anyone running a financial firm should know there's a $#!tload of nails and needles out there and you will sooner or later brush up against them. If they pop your balloon, it's not the fault of the nails and needles, it's your fault for overinflating your company into a hot air balloon just to make it bigger.

Why do you figure short sellers targeted Lehman and Bear Stearns, and not, say, Wells Fargo?

Jackals prey on the weak. They aren't the cause of the weakness.
I think you are underestimating the fragility of any financial firm's portfolio. Firms that depend on trading for the majority of their profits are more vulnerable since they have fewer and riskier funding sources, but all financial firms hold assets which depend on counterparties. During a market panic, counterparty risk froze credit markets which the entire financial system depended on - it was a systemwide bank run, except that the run was on the shadow financial system which most firms depended on for financing. As you know, bank runs can destroy even relatively healthy institutions.