not really Wall Street, but banks around the world, the monetary system itself looked at Bear Stearns and said, holy crap, we could be wiped out. So from the perspective of bank managers, the downside is, my equity, my money, my job, everything could be wiped out. So how did the system respond to Bear Stearns? The Fed celebrated, they said, this is great. Everything is behind us, we got this massive success that we can build on when the entire monetary system started doing the pro cyclical types of activities that we, that are associated now with monetary crisis, they started to build up cash cushions. Because again, as Bill Dudley said, Bear Stearns went from troubled but viable to unviable in three days. So firms built up cash cushion. And as firms are building up their cash cushion, they're not extending cash into the marketplace. So markets get even more illiquid. And as markets get even more illiquid, guess what firms do? They build up their cash cushion even more. It becomes this (24/57)
You are viewing a single comment's thread from: