Monday, September 15, 2008

Postmodern Bank Runs

from Krugman:
as the unknown unknowns have turned into known unknowns, the system has been experiencing postmodern bank runs. These don’t look like the old-fashioned version: with few exceptions, we’re not talking about mobs of distraught depositors pounding on closed bank doors. Instead, we’re talking about frantic phone calls and mouse clicks, as financial players pull credit lines and try to unwind counterparty risk. But the economic effects — a freezing up of credit, a downward spiral in asset values — are the same as those of the great bank runs of the 1930s.

What is next, investors jumping out of virtual windows, or mmorpgs for soup and bread???

Unfortunately, the pain is very real.

1 comment:

lex dexter said...

this is a very different kind of downturn. it will necessitate the State "disciplining" the financial sector, but it will not necessarily involve any upward movement on wages or other labor gains.

imagine if Obama went all "Price Controls and Full Employment" on everybody.