A Return To Depression-Era Market Shutdowns?

Could we be getting close to the time when major parts of the financial system go on “holiday?” Just like the U.S. banking system had to be shut down at times during the Great Depression of the 1930s to halt the ruinous rush to withdraw deposits, could the same now happen to the “shadow” (unregulated) banking system?

Specifically, it would not be too surprising to see the whole hedge-fund industry to go into an indefinite lockdown period to keep withdrawals from fuelling waves of forced selling in financial markets. Similarly, “holidays” could surface elsewhere too, like in the money market mutual fund industry, or even the entire mutual fund industry.

Comments

[Dikidikido:]

What's lost is that for every seller there's a buyer and money is being made all the way down. Where is "IT"?

2008 Oct 09 01:53 PM

[carey_jim:]

Often, shutting down a market has no effect other than to cause suffering for people who can't make the real transactions they want or need to make, such as withdrawing money needed for a medical emergency.

When the market opens again, the same underlying problem still exists (if the patient hasn't died!) and withdrawals and sales continue where they left off but sometimes at a more rapid rate because of pent up desires and needs.

We have to be careful not to confuse a market failure with a precipitous market fall. If people want or DON'T want something, it is the market's purpose and function to allow the purchase or sale of that something.

As long as people believe they can withdraw as much money as they want from banks (insured by the government printing press) they will be happy enough and a bank holiday wont be necessary.

As for stock and other markets, why shouldn't people be allowed to sell to willing buyers and buy from willing sellers?

2008 Oct 10 11:17 AM

[notsosmart:]

its all a game. if the insiders start to lose the rules change.that has to be really obvious now.

2008 Oct 10 05:31 PM