Fisher’s concern was the broader notion of “systemic risk”: if Long-Term failed, and if its creditors forced a hasty and disorderly liquidation, he feared that it would harm the entire financial system, not just some of its big participants. Greenspan later used the phrase “a seizing up of markets,” conjuring up the image of markets in such disarray that they might cease to function—meaning that traders would cease to trade.8 McDonough evoked a parallel fear—that losses in so many markets and to so many players would spark a vicious circle of liquidations, extreme fluctuations in interest
...more
