I'd like to hear mcgowanmc's response.

My thought is that what he means is bond prices will drop a lot and there will be a corresponding rise in interest rates. I don't know whether the 15 day time frame is right, but it is a perilous time right now, and that is the general direction things are moving. As there are more and more defaults, this is the direction one would expect bond markets to move.

If bond prices drop a lot and there is a corresponding rise in interest rates, the lack of credit we have been seeing recently in bank borrowing and commercial paper will spread to the rest of the debt market--namely bonds. It will make it very difficult for businesses to finance anything. Companies (and municipalities and churches) that thought they could issue new bonds to pay off old ones coming due will find this impossible to do, without raising their financing costs to exorbitant levels. This could result in more bankruptcies, and more defaults on loans, starting the cycle over again.

These bonds are held by many organizations, mostly not banks (although banks may hold some of the bonds), so it will be difficult for the infusion of cash into the banks to have much effect in stopping the cycle. To the extent banks hold the bonds, this will bring down their equity, causing more banks to fail. The drop in bond values will eventually hit other holders of bonds, including insurance companies, pension funds, causing them to have financial problems as well.