tag:blogger.com,1999:blog-6704573462403312459.post2269058747884333585..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: The free banking alternative to the centralized provision of lender of last resort servicesJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6704573462403312459.post-3153578108520905682012-06-06T08:53:23.373-04:002012-06-06T08:53:23.373-04:00...rethinking this.
A formal liquidity options ma......rethinking this.<br /><br />A formal liquidity options market lacks precedent. But anytime a store sells you something with the option to sell it back to the store for full retail price, they've given you a liquidity option.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-29358248983144416662012-06-04T12:51:45.976-04:002012-06-04T12:51:45.976-04:00Yes, liquidity options lack precedent.
It's ...Yes, liquidity options lack precedent. <br /><br />It's not just banks who have suspension clauses. Mutual funds and hedge funds experiencing redemptions will often impose a six month delay before cash will be returned. This prevents them from having to sell relatively illiquid stocks at large discounts in order to satisfy redemption requests.<br /><br />Liquidity options would serve the same purpose as suspension clauses. Rather than suspending redemption, a mutual fund could simply exercise several liquidity options to sell securities at a liquidity protected price, thereby quickly raising the cash necessary to meet redemption.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-77065395500287485242012-06-03T20:27:39.536-04:002012-06-03T20:27:39.536-04:00Seems like liquidity options would work, but I can...Seems like liquidity options would work, but I can't find any historical examples, so maybe there's something impractical about them (like: Who bails out the bailer-outer?)<br /><br />The thing I do see a lot of is 30-60 day suspension clauses on bank-issued money. If done right, that can eliminate the need to sell assets at fire sale prices. That prevents insolvency, and we're back to not needing a lender of last resort.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-88054607310269554342012-05-18T17:44:56.114-04:002012-05-18T17:44:56.114-04:00Hi Mike, good to see you.
I'm not going to di...Hi Mike, good to see you.<br /><br />I'm not going to disagree here. <br /><br />"We" may no need a LOLR, but I don't doubt that there are individuals and institutions who would like to own financial products - I call them liquidity options - that protect them in a scenario in which they are forced to sell their assets in haste to raise cash. Solvent banks from time to time need to sell off assets in panicking markets to meet redemption requests, so do consumers. Both might want to hold a portfolio of liquidity options as protection.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-63972505855955836902012-05-18T12:31:33.911-04:002012-05-18T12:31:33.911-04:00JP:
Great blog (or non-blog)!
Two observations ...JP:<br /><br />Great blog (or non-blog)! <br /><br />Two observations about a lender of last resort:<br />1) Insolvent banks can't be helped by a lender of last resort.<br />2) Solvent banks don't need a lender of last resort. <br /><br />Conclusion: We don't need no lender of last resort.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.com