In September 2008, things had got quite bad already, with banks being unwilling to lend to each other - which is to say LIBOR was too high. We now know that this figure was an underestimate, disguising the magnitude of unhealthiness.
The UK government announced a massive rescue plan on Wednesday October 8, 2008, including central banking interest rate cuts from the Bank of England, the ECB and the Fed. The main aim of this co-ordinated measure was to reduce LIBOR.
It did not immediately work. By the end of the week it instead went up. Of course, they had been lying about it before, and they were lying about it now. Maybe the true rate had decreased, it's just that they had to lie less about it.
It not having lowered spooked the central banks, so the next Monday they (this time the BoE, the ECB and the Swiss National Bank), announced unlimited emergency loans. The same day the government agreed to pump capital into RBS, Lloyds and HBOS. This second intervention did have the effect of making the rates drop. Meanwhile, Barclays was able to decline government money and get new money from Qatar. This was seen as the end of the immediate crisis.
We of course know now that this key element - LIBOR - that policymakers were so worried about, and was sold to us as the justification for these massive bailouts, was rotten to the core because the bankers had been lying to each other and to us. Make no mistake: this was not using a back-channel to manipulate arbitrage to get slightly better margins in risky deals. This was the deliberate manipulation of state policy by massive lying, for financial gain.
We're never going to know what would have happened otherwise. Two things are certain: The problems in the financial industry would have been fully revealed, and therefore central banks' actions would have been different. Would the central banks have made Wednesday's offer bigger? Would they have gone straight to Monday's offer? Would they have just said "actually, no, you're not too big to fail", and made good on those deposit guarantees? Would Barclays' new investors have done so if Barclays had not been lying about LIBOR?
A banking sector that had completely failed and was mostly in state hands would have been a very different thing to what we got. Perhaps the idea of publicly-traded retail banks would be utterly discredited and we'd be talking of mutualising the entire sector by now? They just narrowly avoided an utter rout, and this is how - by scamming us.