A lot of people have been asking that question, for obvious reasons. The short answer is that no one quite knows, and that's the problem.
During the Lehman failure, the Federal Reserve and other agencies put quite a lot of effort into making sure that the ripple effects didn't spread too far in the markets where Lehman was a major counterparty. They were successful: the unwinding of Lehman's positions has actually been rather smooth, though slow and not particularly happy for the counterparties. What they hadn't known, and indeed, couldn't really have known, was that the effect on Lehman debt would cause the value of a smallish money market fund aimed at institutional investors would break the buck. And because breaking the buck is so rare--the last major one had occurred in 1994--they certainly didn't see what would happen next, which is that the commercial paper market would completely freeze up, threatening massive effects in the real economy, like firms not being able to make payrolls.
What hidden issues like this lurk in a Citigroup bankruptcy? Compared to Citigroup, Lehman was a simple entity; it borrowed some money, it issued some securities, it bought and sold some other securities. Citigroup is a bank, a trading operation, an insurer . . . and it has commercial banking operations in something like 119 countries, all of whom have their own opinion about what should happen to the company, and regulatory authority over at least a piece of it. It's tempting to think that the Lehman bankruptcy has already exposed the potential problems from any collapse
Then there are the effects we can predict. If we really let Citigroup go bust--wipe out everyone except the depositors up to the FDIC insured limit--there are some fairly predictible effects. Being an economics writer, and therefore prizing gains from trade, I will outsource my explanation to another blog:
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