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Profiting off the Liquidity Preference
CrossingWallStreet.com — ... paying dividends over 12%. The problem was the REITs had kept going down and the dot.coms kept rallying. It seemed as if the breaking point had already passed. I think one advantage of the liquidity preference would be for the government to issue massive amount of short-term T-bills at their regular auctions. The proceeds could be used to by high-yielding preferred stock is locked-up companies. That way we could use the liquidity premium to the taxpayers’ advantage. Arnold Kling has more. ...

One Dozen Observations on the Current Market Stress
The Aleph Blog — ... bail out specific lending markets, and downgrade the quality of their balance sheet buy up securities where liquidity is temporarily in short supply.  Personally, I don’t think it will work.  It is much easier to get into a market than to get out, particularly if you are a large player with no profit motive.  Three last semi-related articles that I found interesting: Quantitative easing: printing money like mad to ward off deflation Should We Penalize Liquidity Preference? Profiting off the Liquidity ...

Fedthink
Interfluidity — ... even though in aggregate the banking system has no choice but to hold the reserves. Presumably, banks would pass costs to depositors by eliminating interest on deposits, increasing fees, and ceasing to offer term CDs. Money in the bank would go from what everyone wants to something nobody can afford to hold. People would strive to minimize transactional balances, and invest any savings in money markets or stocks or bonds, anything not subject to the tax. (This is similar in spirit to a suggestion by Arnold Kling .) Of course there would be tricky consequences: Gresham's law ...