Thursday, March 13, 2008

[Latest Global Dollar Liquidity measure: +11.3% annual growth rate; latest Endogenous Liquidity Index: -50.6%]

There are all sorts of rumors out there about hedge funds, and even about some big financial institution going under. The liquidity crisis, apparently, is fast becoming a ... solvency crisis! Here's my two cents on the rumors: I don't believe them. I trully think that the new market-based, securitization-driven financial market has succeeded in diversifying credit risk. Of course, we are only now becoming aware of the phenomenal downside: a spectacular information crunch, whereby nodody really knows the extent of the damage sustained by one's credit counterparties.

Overall, the Fed's liquidity operations are well designed. But perhaps Mr. Bernanke should be more explicit about his goal: to solve the liquidity puzzle while not giving the impression that he stamps his signature on mere American ... pesos.


Anonymous said...

Please tell me what Endogenous Liquidity Index is?

schaafgregg said...

I too would appreciate a clarification.

Anonymous said...

your wrong.. it's hitting the fan and it's big and brown like a bear

Anonymous said...

Agustin, ever the optimistic!

The problem with your view on the world is that this always was a solvency crisis! The liquidity crisis is only a symptom of it...just like subprime is a symptom of historically loose lending that has now created a de-leveraging debt deflation crisis.

don said...

With due respect, your continual optimism becomes less well grounded with each passing week.

How about more critique, even at risk of sounding less upbeat.

Agustin said...

Hello everybody, thanks for the comments!! I'm very busy right now, and that's the reason why posting has been so light. I have just decided that readers who want to receive an excel file with the Endogenous Liquidity Index can write to me at; I will send the file in return!

I realize that the blog has created and overly optimistic impression. Yet, as I have been telling readers, the ELI is down more than 50%!!! Talk about optimism!!!

Cheers everybody, and thanks again for the comments!!!

P.S. Don't forget to write if you want to receive the Excel file with all the numbers.