QOTD: The Price of Liquidity

Markets are going to have to reprice lower as borrowers and
intermediaries figure out the real costs of liquidity, but a
move from current levels to more sustainable ones will be easier
and less costly than the ultimate blow-up should we return to
pre-crisis practices.

This is not to say the process is without risk: that’s
exactly the point. There is a transitional risk as we move from
a market in which publicly backed institutions like banks took
liquidity risk in larger size to one in which they must work out
a fair price to make borrowers and investors pay.

That is going to be a bumpy process, but financial markets
should be bumpy. You can have your bumps a little at a time, or
all at once, as in 2008. The former is preferable.