IAS Fellow's Public Lecture - Liquidity Lost: The Global Financial Crisis, 2007-8
From its outbreak in August 2007 through to the bankruptcy of Lehman Brothers in September 2008, the crisis in global financial markets was understood by practitioners, public policy-makers and the press through the watery metaphor of ‘liquidity’. Liquidity became the touchstone for explanations of what was wrong during this period, as an apparent ‘liquidity crisis’ brought markets to a standstill. In the absence of the liquidity provided by ready and willing buyers, the value of financial assets plummeted, especially those related to the sub-prime mortgage market in the United States. And, as investors racked-up major losses, the responses of central bankers and treasury officials were similarly figured through the rubric of liquidity. Emergency loans were provided to banks in the name of ‘pumping liquidity’ into the money markets, and the public purchase of ‘toxic’ sub-prime related assets was justified in terms of ‘getting credit flowing again’.
This lecture, then, will address several key questions: how did the global financial crisis initially come to be understood as a moment when liquidity had been lost?; and how did its definition as an illiquidity problem also define the limits of what was deemed possible by way of crisis management by public authorities, and with what consequences?
Paul Langley is a social scientist of financial markets, and his recent book, The Everyday Life of Global Finance: Saving and Borrowing in Anglo-America (2008), is being widely read in the context of the present crisis. He is a Fast-Track Fellow at the Institute of Advanced Study between January and March 2010.
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