Monday, August 27, 2007

The 2007 liquidity crisis

Are we still in the midst of a liquidity crisis? Have certain segments of the financial markets become more volatile, or have some markets seized up due to a lack of ready cash and uncertainty?

These are some of the questions and issues explored in a recent article, "The 2007 Liquidity Crisis - Q&A".

According to authors Andy Sutton and Atash Hagmahani, the recent turmoil in the markets has resulted in an ongoing liquidity crisis, one the media would like most people to ignore. The authors explain their view of what's currently happening in the equity and credit markets, and give an overview of why the current liquidity has occurred.

You'll also find some historical reference to past liquidity crises, especially the Panic of 1907.

Comparisons between 2007 and 1907 have gained traction lately, as some observers find seem to find striking similarities between the two periods of financial fallout (no doubt they are also attracted to the analogy because of the 100-year anniversary between them).

Reactions to the Federal Reserve's response to the crisis are also found here. The authors are plain-spoken in their explanation of the Fed's chicanery and the likely outcome of their interventions: the creation of moral hazard. Certainly not the view you'll find from your local media outlet.

So give this piece a read, and forward it on to any friends and acquaintances who might need or want an alternative explanation of recent financial events. You'll find that the article provides a good overview of central bank responses to these events, and the authors definitely do not mince words.