When Bankers Fear to Act
Where is the next J. P. Morgan?
In times of market crisis, the safest course for any one market participant may be the riskiest course for the entire market. If everyone wants to sell, prices can go in only one direction.
In past financial crises, it has fallen to someone — regulators, investment banks or even a single banker — to organize collective action and avert disaster.
Such moves involved persuading people to take steps that seemed to go against their own private interests. Buy stocks when everyone wants to sell? Lend money to a bank in danger of failing, when your own bank might need the money tomorrow? Join with others to buy securities from a desperate seller, rather than try to maximize your own profits from his precarious position? It goes against the basic principle of markets, that your job is to look out for yourself.
But all those things have happened in the past. Unfortunately, nothing like them is happening in the current crisis.
Read entire article at NYT
In times of market crisis, the safest course for any one market participant may be the riskiest course for the entire market. If everyone wants to sell, prices can go in only one direction.
In past financial crises, it has fallen to someone — regulators, investment banks or even a single banker — to organize collective action and avert disaster.
Such moves involved persuading people to take steps that seemed to go against their own private interests. Buy stocks when everyone wants to sell? Lend money to a bank in danger of failing, when your own bank might need the money tomorrow? Join with others to buy securities from a desperate seller, rather than try to maximize your own profits from his precarious position? It goes against the basic principle of markets, that your job is to look out for yourself.
But all those things have happened in the past. Unfortunately, nothing like them is happening in the current crisis.