I don't see what the problem is with letting one of the Fed's 20 prime dealers fail (e.g. BSC). Other companies could and have stepped in before. Wikipedia's article Primary dealers is well worth a read. A couple of interesting bits from that:
-"Primary dealers are banks or securities broker-dealers who may trade directly with the Federal Reserve System of the United States. They are required to make bids or offers when the Fed conducts open market operations, provide information to the Fed's open market trading desk, and to actively participate in U.S. Treasury securities auctions"...
-"all of the top ten dealers in the foreign exchange market are also primary dealers, and between them account for almost 73% of forex trading volume"...
-the list of dealers as of Nov 2007:
* BNP Paribas Securities Corp.
* Banc of America Securities LLC
* Barclays Capital Inc.
* Bear, Stearns & Co., Inc.
* Cantor Fitzgerald & Co.
* Citigroup Global Markets Inc.
* Countrywide Securities Corporation
* Credit Suisse Securities (USA) LLC
* Daiwa Securities America Inc.
* Deutsche Bank Securities Inc.
* Dresdner Kleinwort Securities LLC.
* Goldman, Sachs & Co.
* Greenwich Capital Markets, Inc.
* HSBC Securities (USA) Inc.
* J. P. Morgan Securities Inc.
* Lehman Brothers Inc.
* Merrill Lynch Government Securities Inc.
* Mizuho Securities Company USA Inc.
* Morgan Stanley & Co. Incorporated
* UBS Securities LLC.
I thought about looking at what the capitalization of each of these dealers was as of the last reporting date, but then realized that that would be futile as such reports are either works of fiction or hopelessly out of date:)