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Institute of Advanced Study

Cause, Condition, Cure: Liquidity in the Global Financial Crisis, 2007-8

Abstract

This paper contributes to the Institute of Advanced Study's 2009-10 theme of Water by exploring the power of the watery metaphor of ‘liquidity' in the recent global financial crisis. For at least 12 months or so from the outset of the crisis in August 2007, serious disruptions in markets were represented as a ‘liquidity crisis' in practitioner, academic, media and policy discourse. The paper disaggregates and explores three sets of representations of the crisis that all feature the notion of liquidity, but which each carry forward quite different meanings. These representations view liquidity as cause of, condition for, or cure for the crisis. The paper then begins to address a conceptual puzzle: how was it possible for starkly contrasting meanings of liquidity to contribute towards the rendering and governing of the crisis as a liquidity crisis? Two related conceptual avenues are highlighted for approaching this puzzle. First, once conceived of as holding performative power, liquidity can be understood to have produced a de-politicising visualisation of the crisis that brought together an array of developments as a single problem to be acted on, but to have operated contingently through the reiterative naming of the crisis in which the contrasting meanings of liquidity were not particularly significant. Second, once the apparatus through which the ‘liquidity crisis' was governed is conceived of as a distributed form of agency, interventions can be understood to have been enabled by relations between discursive and material elements that worked in conjunction but which also entailed tensions and frictions. Liquidity may have appeared, at once, as the cause of, condition for, and cure for the global financial crisis, yet this watery metaphor was nonetheless crucial to how the crisis came to be imagined and tackled in seemingly coherent and consistent ways.

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