Systemic Risk

I read an article awhile back but can’t remember who wrote it or where I read it.  If I could, I would gladly give credit.  The article compared major banks to Mafia run booking houses.   Hmm!   Well, at this point, lets just say it is a metaphor.
In any case, it went like this:  If a gambler doesn’t make good on debts to his bookie he may very well get escorted to a dark ally and emerge with a broken leg or something of that nature.  If he doesn’t pay a second time he may end up wearing concrete boots at the bottom of the East River.  Problem solved, he never defaults again.  Better yet, word gets out to other potential non-payers. They may reconsider.
Why does the Mafia rigidly enforce this rule?   Are they nasty mean people?  Well, maybe, but it is mostly just good business.  If non-payers are treated leniently other debtors may not pay.  The bookie could fail.  If the bookie fails, other bookies (think counterparties)  could also fail.  The chain reaction goes on and the whole operation can come crashing down.
Likewise, if one bank does not get its payments from its counterparties (financial institutions),  they in turn cannot pay their counterparties.  One after another they fail.  That almost happened after Lehman Brothers went bankrupt.  Banks everywhere came close to not paying their counterparty obligations.  That, my friend, is Systemic Risk, a failure of major banks worldwide.   The US government will do practically anything to avoid that scenario, hence no more Lehmans and lots of bailouts.  We the taxpayers are keeping the banking system functioning with bail outs.  The question is can we continue to do it, as we most surely will have to.
What would have happened if we had allowed “Systemic Failure” last October?  I don’t know.  Maybe it would not have been worse than drawn out pain we are experiencing now.  Maybe taking the hit fast and quick is better than the slow torture of drawing it out.  It certainly would be easier on the tax payers.
Wikipedia’s definition of “Systemic Risk”:  Systemic risk is the risk of collapse of an entire system or entire market and not to any one individual entity or component of that system.