History will call it the Panic of 2008
Reader comment on: 'Once-Toxic'
Submitted by Lyle (United States), Apr 12, 2011 11:15
This shows that what happened is best termed a panic. Clearly after Lehman failed it was a literal panic (after all a run on a bank is a sign of a panic and a run on the shadow banking system is a systemic panic. Part of the problem is that public corporations are not allowed to be patient investors. Clearly the answer is for banks to hold no inventory of these things, but rather be movers. Let hedge funds and other private investors hold the stuff they can be more patient. It makes a less liquid system but a more stable one. Is perhaps a problem that you can't have both a liquid system and a stable system? A liquid system forces mark to market, and thus instability.
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