VoxEU.org - 11/15/2008
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Lasse Heje Pedersen , 15 November 2008 What is liquidity? Why is it at the heart of the crisis? How can we fix it? This column explains it all in terms any trained economist can understand. Full Article: Understanding liquidity risk and its role in the crisis
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Economist's View —
Understanding liquidity risk and its role in the crisis - Vox EU
Asset prices and Obama - FT
How to Ground The Street - washingtonpost.com
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The Liquidity 411
Capital Gains and Games —
Your Sunday required reading this week comes from Professor Lasse Heje Pederson of NYU, courtesy of VoxEU, "Understanding Liquidity Risk and the Current Crisis." Jumping straight to the conclusions:
If the problem is a liquidity spiral, we must improve the funding liquidity of the main players in the market, namely the banks. Hence, banks must be recapitalised by raising new capital, diluting old equity, possibly reducing face value of old debt. This can be done with quick resolution bankruptcy for institutions with systemic risk, i.e. those causing liquidity spirals.
Further, we must improve funding markets ...
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