morph366

Meredith Whitney Ratings

The timing and forum for her announcement yesterday (CNBC guest for one hour) was designed to ensure that she maintains the "power to move markets".
Lots of the "head and shoulder" shorts were falling over each other yesterday to cover in the financials, but it remains to see how much real institutional buying moves into the banking sector

Liquidity, Solvency and Acute vs. Chronic Banking Systems

I totally agree with you that we need an entirely new set of terminology, metaphors and models to understand some of the foundational issues in financial economics. The academic establishment in Macro-economics have completely failed to account for such pivotal concepts as market liquidity and its disappearance, and along with other key macro factors have more or less taken adequate liquidity conditions as a given in their modeling exercises.
The suggestion you have made to use some language and concepts from medicine is one possibility and others from psychology such as dissonance, fractiousness and coherence could be useful in explaining the essential paradox of market liquidity. Moreover in the history of ideas gradualism versus catastrophism has a lot of relevance here as do studies relating to non-linear dynamics and tipping points of systems at critical phase transitions.

The paradox of liquidity is well expressed in the following and is something that I have discussed elsewhere.

Liquidity declines more than proportionally with the intensity of the demand for it. The more you need cash, the higher the price you have to pay to get it. And when average opinion comes to believe that average opinion will decide to turn assets into cash, then liquidity may be confidently expected to go to zero. By definition, no market can hedge this risk; no individual participant is rich enough not to need the hedge.

For me this has always suggested that no amount of sophisticated financial modeling will ever properly prepare and protect investors for the risks inherent in markets.

Financial Firms Need to Control Their PR

Bankers have always been more focused on PR than Hollywood - after all many on Wall Street have bigger illusions to protect than those in LaLa Land