To meet our market maker requirements, which allowed us to do things normal market participants can't do, like naked shorting, we would do things like leave a 1 penny bid and ten-thousand dollar ask and not change them for the entire day. Exchange regulators tried to address this and made market makers quote within some percentage of the bid/ask. Nasdaq literally just created an order type that would automatically reprice itself to always be exactly that percentage away from the bid/ask, so that it could never execute--just like the previous 1-penny bids--but would comply with the regulation. The order type only existed to bypass that regulation and was literally created in response to demand after its passage.
Even without that order type we'd just do (and did do, it took them a while after the regulation to add the order type) the same thing in the models' trading logic.
But under certain circumstances they didn't really like this requirement so they kind of cheated by changing their bid to 1 penny and their ask to $10,000. For a stock that trades around, say, $100 this means that while they de-facto had a bid and ask in place it wasn't really a real bid or ask as no one else would ever want to trade at those prices.
The event people think of when we talk about electronic liquidity "vaporizing" is the Flash Crash. The Flash Crash was a series of mistakes whose impact was profound enough that nobody could trust market data; the system, in its corrupted state, was in fact untrustworthy, and the idea of providing liquidity across it seems in retrospect pretty dubious.
Unusual things happen all the time in the markets. Many of those unusual events involve bugs and errors in the exchanges. Liquidity does not routinely vanish from the markets in response to those events. How many major "evaporations of liquidity" can you name in the last several years apart from the Flash Crash? 5? 10? How do you think those counts will compare to liquidity during the specialist system?
Warren Buffett's favorite business book, _Business Adventures_, opens with a chapter on a liquidity crisis from the 1960s so profound that the market data technology of the day was backed up several hours --- that's how long you'd have to wait simply to see what the current price of a stock was.