What proved in retrospect to be excessive liquidity for some types of assets turned into scarcity nearly overnight, confirming the view that liquidity is most available when you need it least and least available when you need it most. The period was defined by runs, not on bank deposits (at least not insured bank deposits), but on short-term wholesale funding.
Because of deep uncertainty about the condition of counterparties and the value of assets serving as collateral, investors refused to roll over existing repurchase agreements (or repos) and similar extensions of credit, much less to offer new lending. Many trading activities ground to a near halt, and dealers were forced into fire sales of the assets on their balance sheets that remained liquid.