When "confidence" is lost, "liquidity dries up." We investigate the meaning of "confidence" and "liquidity" in the context of the current financial crisis. The financial crisis is a manifestation of an age-old problem with private money creation, banking panics. We explain this and provide some evidence with respect to the current crisis.

Andrew Metrick

Gary B. Gorton

English

Research Papers in Economics

Are the Brokers Broken?,‖ Citibank Global Markets Group.

Banking Panics and Business Cycles,&quot;

Clearinghouses and the Origin of Central Banking in the U.S.,&quot;

Common Risk Factors in the Returns on Stock and

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Derivatives and Rehypothecation Failure: It’s 3:00 p.m.,

Developments in Repo Markets During the Financial Turmoil,‖ Bank for International Settlements Quarterly Review

Financial Intermediaries and Liquidity Creation,&quot;

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Opacity and the Optimality of Debt for Liquidity Provision,‖ working paper.

Returns and Volatility of Low-grade Bonds:

Securitized Banking and the Run on Repo,‖ Working paper, Yale School of Management.

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The Investment Performance of Low-grade Bond Funds,‖

The Panic of 2007,‖ in Maintaining Stability in a Changing Financial System,

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Research Papers in Economics